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12
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Chapter Twelve

Responsibility Accounting, Quality Control, and Environmental Cost Management

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Responsibility Centers
A subunit in an organization whose manager is held accountable for specified financial results.

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Responsibility Centers
Cost Center Segment has
control over the incurrence of costs.

Revenue Center
Segment is responsible for the revenue of a unit.

The Paint Department in an automobile plant.

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The Reservations Department of an airline.

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Responsibility Centers
Profit Center
Segment has control over both costs and revenues.

Investment Center
Segment has control over profits and invested capital.

Company-owned restaurant in a fast-food chain.

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A division of a large corporation.

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Measuring Management Performance Evaluation Tool

Cost Center
Profit Center Investment Center
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Cost standards
Contribution income statement Rate of return on invested funds or residual income

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Performance Reports
Shows the budgeted and actual amounts, and the variances between these amounts, of key financial results appropriate for the type of responsibility center.

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Activity-Based Responsibility Accounting

Traditional responsibility-accounting systems tend to focus on the financial performance measures of cost, revenue, and profit for subunits of the organization.

Activity-based costing systems associate costs with the activities that drive those costs. In activity-based responsibility accounting attention is directed not only to costs incurred but also to the activity creating the cost.
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Behavioral Effects of Responsibility Accounting

Controllability

Information versus Blame

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Motivating Desired Behavior

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Segmented Reporting
A segment is any part or activity of an organization about which a manager seeks cost, revenue, or profit data.

The Operating Section of a hospital

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Segmented Reporting
Cell Phone Division

Product Lines

Systems

Personal

U.S. Sales

Foreign Sales

U.S. Sales

Foreign Sales

Sales
Territories
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Key Features of Segmented Reporting

Contribution format. Controllable versus uncontrollable expenses. Segmented income statement.

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Segmented Income Statement

Contribution Format
Sales Variable costs CM Traceable FC Segment margin Common costs Net income Income Statement Cell Phone Division Systems $ 300,000 $ 200,000 (150,000) (95,000) 150,000 105,000 (80,000) (45,000) 70,000 60,000 10,000 $ 60,000 Personal $ 100,000 (55,000) 45,000 (35,000) 10,000

Costs that cannot be controlled by the segment manager are isolated.

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Customer Profitability Analysis and Activity-Based Costing

Lets see, I need . . .
Special credit terms, Small order lots, Special packing, Great field service, and JIT delivery. We can handle that - but we need to quote a price that reflects the value of these services.

Customer
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Company Sales Rep

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Total Quality Management

Design Grade
Quality

Conformance

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Total Quality Management

Ranking between products or services having the same functional use. Degree to which actual product or service meets its design specs. and is free of mfg. defects.

Grade

Requires a certain . . .

Quality of Design

Must be supported by . . .

Quality of Conformance

Judged by . . .

Product meets customer expectations for the grade level chosen.

Customers

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Cost of Quality
Quality costs include the follows:

Prevention costs, Appraisal costs, Internal failure costs, and External failure costs.

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Traditional Perspective of Product Quality

Costs

Total Quality Costs

Prevention and Appraisal Costs

Failure Costs

0%
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Minimum

100%

Percentage of Defective Products

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Quality Cost Reports

A graphic Quality Cost Report might look like this:
Quality Cost Report
300,000 250,000 200,000 150,000 100,000 50,000 Prevention Appraisal Internal failure External failure

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ISO 9000 Standards

The International Standards Organization (ISO), require that a manufacturer have a well-defined quality control system in place, and that the target level of product quality be maintained. Sustain quality of product. Effective quality control system in place. Provide purchaser confidence in the product.

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End of Chapter 12

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