Maintaining Control over Decentralized Organizations

Responsibility centers can be based on attributes such as sales regions, product lines, or services offered. In the case of Game Products Inc., there are three responsibility centers based on three product lines. The purpose of establishing responsibility centers within organizations is to hold managers responsible for only the assets, revenues, and costs they can control. The level of control a manager has will help determine the type of responsibility center used for each manager.

With this approach, responsibility centers are allocated budgets, and their revenues and costs (variable and fixed) are tracked. Each center has a responsibility income statement. Responsibility center expenses are allocated to direct variable costs and direct fixed costs. The responsibility center contribution margin is determined by reducing revenue by variable costs. Subtracting allocated fixed costs from the contribution margin yields the responsibility margin.