## Responsibility Centres

### Definition

A Responsibility Centre is a unit or function of an organisation under the control of a manager who is directly responsible for its performance.

### Five Types of Responsibility Centres

Centre	What is Accumulated	Primary Objective
Cost Centre	Costs only	Minimise costs
Revenue Centre	Revenues only	Maximise revenue
Profit Centre	Revenues + Costs	Maximise profit
Contribution Centre	Revenues + Variable Costs	Maximise contribution
Investment Centre	Costs + Revenues + Investment in Assets	Maximise Return on Capital Employed (ROCE) / ROI

### Progression Logic

Each centre adds one more variable to the accountability framework:

Cost Centre — only costs matter
Revenue Centre — only revenue matters
Profit Centre — both revenue and costs matter (profit = revenue − total costs)
Contribution Centre — revenue and variable costs matter (fixed costs excluded)
Investment Centre — everything above, plus the capital deployed to earn returns

### Key Differentiator: Investment Centre vs. Profit Centre

An Investment Centre has full control over capital allocation in addition to revenue and costs. Its manager is judged on ROCE or ROI, not just profit.

Worked example

### Example 1

Classify each as a responsibility centre:

(i) A sales division evaluated solely on revenue generated, with no cost accountability.

→ Revenue Centre

(ii) A production department evaluated on keeping manufacturing costs within budget.

→ Cost Centre

(iii) A division that controls both its revenues and all expenses and is judged on net profit.

→ Profit Centre

(iv) A division that controls revenues and variable costs but not fixed overhead allocation.

→ Contribution Centre

(v) A business unit with full authority over revenues, costs, and capital investment decisions — evaluated on return on investment.

→ Investment Centre

⚠️ Common exam mistakes

Confusing Profit Centre with Investment Centre — an Investment Centre additionally controls capital deployed and is evaluated on ROCE, not just net profit
Confusing Contribution Centre with Profit Centre — Contribution Centres exclude fixed costs from their accountability; Profit Centres include all costs
Thinking a Cost Centre has no relevance to revenue — it is simply not held accountable for revenue; it still contributes to output
Forgetting that Contribution Centre is a distinct category — students often skip it and jump from Profit Centre to Investment Centre

Reference:

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