Question

Decentralization divides company operations into various reporting units. Most decentralized subunits can be described as one of four different types of responsibility centers. What are the four different types of responsibility centers?

1) Cost centers, profit centers, investment centers, revenue centers
2) Sales centers, marketing centers, production centers, distribution centers
3) Human resources centers, finance centers, research and development centers, customer service centers
4) Planning centers, organizing centers, leading centers, controlling centers

Answer 1

Decentralization in business leads to the creation of responsibility centers, specifically categorized as cost centers, profit centers, investment centers, and revenue centers. These centers help organizations manage and track different aspects of their operations.

Step-by-step explanation:

Decentralization divides company operations into various reporting units, known as responsibility centers. There are four common types of these centers within a decentralized business structure:

• Cost centers: Units where managers are responsible for controlling costs without regard to revenue generation or capital usage.
• Profit centers: Units where managers oversee both revenue and cost, and thus are responsible for the resulting profit.
• Investment centers: These are like profit centers but with added responsibility over capital investments and usually evaluated based on return on investment (ROI).

• Revenue centers: Units focusing primarily on generating revenue, with little to no responsibility for costs.

While other organizational units exist, such as sales or marketing centers, they do not fall under the typical classification of responsibility centers within the context of decentralization. The four categories mentioned are integral to understanding how businesses allocate and oversee different aspects of their operations.