Page 55 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Responsibility centres

Cost, profit and investment centres

In responsibility accounting:

A cost centre is a production or service location, function, activity or item
of equipment for which costs are accumulated. A cost centre could be
large or small.

A revenue centre is a responsibility centre that is devoted to raising
revenue (or generating sales) without any link to the associated costs.
Revenue centres might be encountered in the not-for-profit sector or in
the marketing operation of a commercial organisation.

If a manager is responsible for revenue as well as costs, the
responsibility centre is a profit centre, and the manager responsible is
held accountable for the profitability of the operations in his or her
charge.

If a manager is responsible for investment decisions as well as for
revenue and costs, the responsibility centre is an investment centre, and
the manager responsible is held accountable not only for profits, but
also for the return on investment from the operations in his or her
charge. There could be several profit centres within an investment
centre.

Illustrations and further practice

Now attempt example 1 ‘Photocopiers’ from Chapter 5.

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