Define Responsibility Centre and discuss the types of Responsibility Centres.

As the organization grows, its functions, organisational structure and other related functions also grow in terms of volume and complexity. To have a better control over the organisation, management delegates its responsibility and authority to various departments or persons. These departments or persons are known as responsibility centres and are held responsible for performance in terms of expenditure, revenue, profitability and return on investment. Types of Responsibility Centres are as follows: (i) Cost Centres: The responsibility centre which is held accountable for incurrence of costs which are under its control. (ii) Revenue Centres: The responsibility centres which are accountable for generation of revenue for the entity. (iii) Profit Centres: These are the responsibility centres which have both responsibility of generation of revenue and incurrence of expenditures. Profitability is the basis for measurement of performance of these responsibility centres. (iv) Investment Centres: These are the responsibility centres which are not only responsible for profitability but also have the authority to make capital investment decisions. The performance of these responsibility centres are measured on the basis of Return on Investment (ROI) besides profit.