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Welcome

to
Presentation
RESPONSIBILITY
ACCOUNTING
Application of Responsibility Accounting

Step 1: Identifying what part of the organization have


responsibility for each objectives

Step 2: Developing measures of achievement of


objectives

Step 3: Create reports of these measures by


Organization’s subunit or responsibility centers.
RESPONSIBILITY CENTERS

Cost Centers

Revenue Centers

Profit Centers

Inventory Centers
Factors Cost Center Revenue Center Profit Center Investment Center

Controlled by Costs Revenues Costs, Revenues Costs, Revenues &


central significant control
management over investment

Not Controlled by Revenues, Costs, Investment in Investment in


central Investment in inventory & inventory &
management inventory & Fixed Assets Fixed Assets
Fixed Assets

Measured by the Costs relative to Revenue relative to Profit relative to Return on investment
Accounting some target some target some target relative to some
System target

Not Measured by the Performance on Performance on Performance on Performance on critical


Accounting critical success critical success critical success success factors other
System factors other factors other factors other than Return on
than cost than Revenue than Profit Investment
Evaluating
responsibility center
President's Responsibility Report
Budget Actual Variance
President’s Office $50,000 $52,000 $2,000 U
Controller 25,000 24000 1,000 F
Production Vice President 18,00,000 18,29,000 29,000 U
Sales Vice President 525000 55000 25,000 U
Total Controllable Costs $24,00,000 $24,55,000 $55,000 U

Product Vice-President’s
Responsibility Report
Budget Actual Variance
Vice President’s office $10,000 $11,000 $1,000 U
Cutting department 500,000 4,98,000 2,000 F
Machining department 9,90,000 10,00,000 10,000 U
Assembly department 3,00,000 3,20,000 20,000 U
Total Controllable Costs S18,00,000 $18,29,000 $29,000 U

Cutting Department
Responsibility Report
Budget Actual Variance
Direct Material $2,50,00 $2,53,000 $3,000 U
Direct Labor 1,00,000 90,000 10,000 F
Variable overhead 50,000 52,000 2,000 U
Fixed overhead 1,00,000 1,03,000 3,000 U
Total Controllable Costs $5,00,000 $4,98,000 $2,000 F
Advantages of Responsibilities
Accounting
 It Provides a way to manage an organization
that would otherwise be unmanaged.
 Assigning responsibility to lower level managers allows higher level managers to pursue other
activity such as long term planning and policy making.

 It provides a way to motivate lower level


managers & workers.
Disadvantages of
Responsibilities Accounting
Responsibility Accounting
Measurement
Return on Investment (ROI)
Formula for calculating the ROI

Net Operating Income

Average Operating Asset


Problems of ROI

When managers are told to increase ROI,


they may not know how to increase ROI

Committed costs, over which managers


has no control
Residual Income
Calculation of Residual Income
Residual Income
Average operating Assets 1,00,000

Net operating income 2000

Minimum required rate of15000


return@15% of average
operating asset
Residual Income 5000
Responsibility Accounting Measurement

BUDGET

EVA
EVA

Problem of ROI and RI


Calculation of EVA
Net profit after taxes 184mil
Cost of capital @9% 104mil
EVA 80mil
OR
EVA = (ROI-WACC) x Invested capital
Qualitative measurement Tools of
Responsibility Accounting

The Balance scorecard

Control of Quality

Control of cycle time

Control of productivity
Is responsibility Accounting
building incapability

?
Section – I explains why and how
management can be related to
fragility?

Section – II Summarizes how they


are affected by management?
Management and fragility

Fragility to Control Fragility to decision making

Political Fragility Cognitive Fragility

Pragmatic Fragility
Management and fragility

Fragility to decision making

Cognitive Fragility

Pragmatic Fragility

Fragility to make good decisions


Political Fragility
Fragility not to obeyed, not to be complied
with.

 We want to say that the agency theory is based on a only restricted vision of fragility
related to lack of will to do. It is not covering multitude of situation where the problem is
not that the agent does not want, but his capacities are fragile.
The myth of Medusa and the
contradictory approach to management

Symbolizes
It emphasizes the radical paralysis faced by men in front of
contradiction.

It shows necessity of the intervention of someone else in


relation between men and contradiction in order to help
Convince himself of his own capacity

The mediation of representation is essential in this


relation
Imputability
Being able to regard oneself as the true author of ones own
action.

I can say
Being able to say

I Can do
Being able to do

I can narrate
An acceptable, intelligible interpretation
of a fact through narration
Typical Sense
 You are capable only when you are recognized by others
as capable.

Imputability
 You are capable when you feel capable.
Relationship between Imputability &
Responsibility Accounting

In responsibility Accounting
Imputability is a relation going from the principal to
the agent.
Problems of this Concept

Responsibility for uncontrollable factors raises the


question of capacity

It does not specifically help managers to feel capable

Managers are underspecified, selfless and bodiless


person
Is responsibility Accounting making the
managers a complete incapable
Person