Expenditure incurred to manufacture a product or provide a service.
Responsibility Centers are organizational sub-units where each sub-unit is assigned a set of responsibilities.
Such organizational sub-units can be created on various bases such as locations, departments, functions, individuals etc.
Responsibility centers could be the following types:
a) Cost Centers
b) Profit Centers
c) Investment Centers
Organizational sub-units which has a responsibility to control & report costs are called cost centers. Costs are generally accumulated to cost centers.
Profit Center & Investment Center
Profit center would be responsible for the profit it generates (they are responsible both for the revenue generated & costs incurred by them).
Similarly, the success of an investment center is measured based on the return generated over the investment made for the center.
Costs classification can be made on various bases. Some of them are explained below: