Responsibility Center
An organizational unit — such as a department or division — whose manager is held accountable for specific financial outcomes like costs, revenues, or profits.
What is Responsibility Center?
A responsibility center is a segment of an organization for which a specific manager is given authority over and held accountable for certain financial results. The four main types are cost centers (accountable for costs only), revenue centers (accountable for revenues only), profit centers (accountable for both revenues and costs), and investment centers (accountable for profits relative to the assets invested). Responsibility accounting aligns authority with accountability, allowing senior management to evaluate each unit's performance using relevant financial metrics. Transfer pricing, internal chargebacks, and segment reporting are tools used within responsibility accounting systems.
Example
A manufacturing company organizes its plants as cost centers (each plant manager accountable for production costs), its sales regions as profit centers (regional directors accountable for revenue and cost), and its major divisions as investment centers (division heads evaluated on return on investment). This structure lets headquarters compare divisional ROI to assess capital allocation.