Question

Responsibility Accounting:

What is cost center and what types of center do you think the following would be:

____ Bakery

____ Accounting Department

____ Product line – original Chessecake

_____ Human Resources Dept

______ Cheesecake Café at O’Hare Airport

Answer 1

A cost center is a part of an organization to which costs are charged and it is responsible for controlling its costs.

Bakery: Cost center

Accounting department: Cost center

Product line-Original cheesecake: Profit center

Human Resources department: Cost center

Cheesecake Cafe at O'Hare Airport: Revenue center/Profit center/Investment center

The production and support departments such as the bakery, accounting department and human resources department are generally cost centers with responsibility limited to control over costs. The product line is a profit center responsible for both revenues and costs while the café is a revenue center responsible for generating sales. It can also be a profit center as it would be responsible for the revenues and costs as well. The café could also be an investment center for the profits generated vis-à-vis the investment in the assets for the same.