Responsibility Center By:

Contents Cost Center Profit Center Investment Center Responsibility Accounting Performance Evaluation It is important to comprehend the needs for following functions to understand accounting and its applications inside a business: cost center profit center investment center responsibility accounting, and performance evaluation

Cost Center Acquires costs and expenses Service departments Production departments The function of cost center acquires costs and expenses, even though they are not directly related to revenue earning or generating. Instead of that, they create the product and/or the support. Human resources, cafeteria, and maintenance departments can be a few examples of service departments.   Some good examples of production departments can be the assembling, painting, and welding department. What is the more important is to analyze the cost and lowering them.

Profit Center Incurs cost and expenses Generates revenue directly Consists of individual selling departments Profit center also incurs cost and expenses just like cost center. However, it can generate revenue directly. The profit center is usually broken down into smaller sections with prime objective of selling. Retails stores such as clothing, auto parts, furniture shops, and branch offices of banks or financial institutes, these all are good examples of selling departments. For people involved in the profit center, the most important task is to analyze the selling techniques.

Investment Center Incurs costs and expenses Revenue Generating Product Lines Diversified Just like profit center, investment center also incurs expenditures yet generates income. However, with a variety of product line, it manages a profit using investments finance. A good example could be like when General Mills would trade more than just one product, and figure out the most beneficial profitability from the figures formed through evaluating which would sell more.

Responsibility Accounting President will supervise Vice President’s work and operations. Vice President possesses the multiple responsibilities of overseeing three managers of cost center, profit center, and investment center. Cost manager is accountable for moderating expenses through production and service departments. Profit center manager is responsible to create the maximum amount of income possible through sales departments. Investment center manager is responsible to generate the highest profit from the products sold and figure out the top areas to reinvest finances.

Responsibility Accounting (cont.) Responsibility Accounting of Cost Center Responsibility Accounting of Profit Center Responsibility Accounting of Investment Center Cost Center Plan flexible budget data to manage all overhead expenditures. The basis of evaluating Cost managers is their capability to manage cost. Profit Centers Analyze direct and indirect expenses. Analyze variable and fixed costs. Improve sales. Key duty is to boost profitability by figuring the figures put together. Profit center manager is to be evaluated depending on their own profit center performance of profits acquired. Investment Centers Turn the highest profit by utilizing assets or capital. Grow operational effectiveness. The performance of an investment manager is evaluated based on Return On Investments revenue. (ROI)

Performance Evaluation The process of making budget objectives of individual departments should receive a direct input from the managers of responsibility centers.  The basis of performance evaluation of the managers should be the concerns that are controllable by them.  The evaluation procedure needs to be supported by the top managers.  The managers should be allowed to respond to their own evaluations through the evaluation process. Both better and poor performance should be recognized by the evaluation. Performance Reports must: - Include the information which is solely controllable by the manager of the responsibility center - Provide with correct and reliable budget information in order to measure performance. - Identify the significant differences between real outcomes and budget objective. - Possibly be tailor made for the projected evaluation. - Be ready at fair intervals.

Summary It is very important to possess the sufficient education for any individual who is just learning accounting and its applications. To achieve success, a person must comprehend the ideas. Also, in order to confirm the success as a team member, one needs to utilize the mastered concepts by coming up with good results.

Resources/ Contact Axia College of University of Phoenix courses Phone: 1800-000-AXIA Email: axiacollege@universityofphoenix.com I hope you all are ready to participate in the course and also ready to fully grasp the accounting principals. The responsibility center is probably the core of accounting. Learn it and you will certainly be successful. Many thanks for listening.