ACG420-1003A-09: Managerial Accounting & Organizational Controls
July, 2010: C.N.B
Responsibility Centers within Organizations
Within every organization today there is at least one responsibility center that helps the organization function. Responsibility centers are the resources and/or set of activities that have been assigned to employees and managers (Horngren, Sundem, Stratton, Burgstahler, & Schatzberg, 2008).
You will find that some organizations have more than one responsibility center as is the case with Barloworld Handling, LLC, a forklift repair, service, and sales company. The core of Barloworld is forklift service to a variety of customers which also includes a wide range in the size of the machines as well. The five main responsibility centers within Barloworld Handling, LLC are as follows: Service, New / Used Sales, Parts, and Marketing. Without one of these centers another would fall short of operating at full capacity as it takes all responsibility centers functioning together for the entire organization to perform at its best. Let’s break down responsibility centers a little bit further below.
Types of responsibility centers and their interactions
Four types of responsibility centers in accounting exists which are: (1) Cost center, (2) Profit center, (3) Revenue center and (4) Investment center (Martin, n.d.). In a cost center the “managers are responsible for the costs only (Horngren, Sundem, et al, 2008)” and it can consume part of an organization or just a department. Whereas a profit center is about the control of profitability; managers in this center are “responsible for controlling revenues and costs (Horngren, et al, 2008)”. A revenue center “includes marketing functions with little costs relative to revenue produced (Martin, n.d.)”. The last responsibility center, the investment center, is the one that adds to the responsibilities of the profit center. Within this center a... [continues]
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