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The basis of a responsibility accounting system is the creation of a group of responsibility centre which is a subunit in an organization whose manager is responsible for specified financial results about the subunits designated activity. There are four common types of responsibility centres:
- Cost Centre: the manager of this subunit (department or division) is held accountable for the costs incurred by the unit. An example of a cost centre is the painting department in a car plant.
- Revenue Centre: the manager of this subunit is responsible for the revenue earned from the unit. An example of this is the sales department of a manufacturing company.
- Profit Centre: the manager of this subunit is accountable for the profit. But the nature of profits is that it is the difference between revenue and expenses, thus the manager is responsible for both these factors. An example of a profit centre is a company owned restaurant in a fast food chain.
- Investment Centre: the manager of this subunit is responsible for the profit and the invested capital used to generate profit within the unit. An example of this is the investment division of a large corporation.
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