acc - 220 - week 8 Responsibility Centers Presentation

acc - 220 - week 8 Responsibility Centers Presentation - 1....

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1. Within every company there are three types of responsibility centers. These centers are cost centers, profit centers, and investment centers. Each center is responsible for its own parts of the company. This training session will discuss what each of the three centers are, what their responsibilities are, why they need their own budgets, and how each center uses incremental analysis to make decisions. 2. For example, the production department would include such things as the installation of services in the customer’s home or work. The service departments are the support services within the company, such as maintenance and human resources. Cost centers are responsibility centers that incur costs and expenses but do not directly make money. These centers are usually the production departments or service departments. Production departments make the product, incurring expenses, but do not sell the product to gain revenue. Since cost centers incur costs and expenses it must have its own budget to follow to ensure proper spending and allocation of funds. 3. Cost center managers are authorized to incur costs but are also evaluated on how well they are able to meet budgeted goals for controllable costs. Within cost centers, incremental analysis is applied to many decisions. For instance, a internet cable company would use incremental analysis to decide whether to make or buy the cable or internet routers to install in a customer’s home. The cost center manager would evaluate the unit cost to make the routers and then compare it with the cost of buying the routers from another company. They would then look at which fixed costs will
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acc - 220 - week 8 Responsibility Centers Presentation - 1....

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