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Question
Question: List the four types of responsibility centers, and briefly describe each.
Step-by-Step Solution
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Answer
Types of responsibility centers:
- Cost center
- Revenue center
- Profit center
- Investment center
1Step 1: Meaning of Responsibility Center
The term responsibility center refers to an entity or organization unit responsible for all the events, tasks, and activities associated with such a particular unit. Each responsibility center carries its separate tasks and goals.
2Step 2: Types of responsibility centers
- Cost Center: The term cost center indicates an organization's unit responsible for spending the costs or expenses on the products and services. Another essential feature of a cost center is that it does not generate revenues.
- Revenue Center: The term revenue center refers to the unit of an organization responsible for generating revenues. Revenue generation is done by selling goods or services to the market's customers.
- Profit Center: The profit center indicates the unit of an organization responsible for earning profits. Such a unit collects the data of revenues and costs and ascertains the variances for profit maximization.
- Investment Center: The term investment center indicates a profit center responsible for making decisions associated with investments and related to the revenue and costs.