Question

When should cost, revenue, profit, or investment center be used?

Answer 1

A concept in managerial accounting, responsibility centers are a method of measuring and evaluating the effectiveness of managers tasked with decision making for their business unit. Not all units of a business have the capacity to generate profit, but instead some support vital functions that incur costs for a business for example, the transportation department in a hospital. A cost center is a unit that does not generate revenue. A revenue center has responsibility for generating revenues, and in most cases will be the same as a profit center, as all units have some level of costs. An investment center is usually found at higher levels in an organization where a unit manager has the responsibility of generating returns on investment capital. I hope this might help you !