Four Types Of Responsibility Centres

16.8 Describe the four different types of responsibility centres. A responsibility centre may be defined as a unit of a firm where an individual manager Is held accountable for the unit’s performance. There are four types of responsibility Responsibility centres – costs or expenses centres, revenue centres, profit centres and Investment centres. Cost or expenses centres are responsibility centres whose manager Are normally accountable for only those costs that are under their control. Revenue Centres are responsibility centres where managers are accountable only for financial Outputs in the form of generating sales revenues. A significant increase in managerial Autonomy

Being head of profit centre is usually more interesting and demanding than Being just the head of a cost centre. Investment centre is a place where costs, revenues and capital investment are Identified. Costs, revenue and capital expenditure all have to be identified separately An investment centre would normally be a subsidiary company and division. The head Of an investment centre will be responsible for costs, revenues and capital expenditure. In effect, that person has responsibility for all financial aspect of the investment centre.

19.3 What are the advantages and disadvantages of divisionalization? Advantages: (a) divisionalization can improve the decision-making process both from the point of View of the quality of the decision and the speed of the decision. (b) delegation of responsibility to divisional managers provides them with greater Freedom, thus making their activities more challenging and providing the Opportunity to achieve self-fulfilment. (c) the distribution of decision-making responsibility to divisions frees top

Disadvantages: (a) there is danger that divisions may compete with each other excessively and that Divisional managers may be encouraged to take action which will increase their own Profits at the expenses of the profits of other divisions. (b) top management loses some control by delegating decision-making to divisional Managers. (c) a series of control reports is not as effective detailed knowledge of a company’s Activities.

20.1 Distinguish between intermediate products and final products. Goods transferred from the supplying division to the receiving division are known as Intermediate products. The products sold by a receiving division to the outside world Are known as final products. The distinguish between intermediate products and final Products is made on the basis of the used of product and not on the basis of product Itself. The intermediate products are still within the production boundary while the Final products have crossed the production