Responsibility

Accounting
Prof.Vanita Patel
Role of responsibility
accounting
 Most organisations are divided into
smaller units.
 Each of them is assigned particular
responsibility.
 These units are called by different
names like divisions ,segments,
units, departments etc.
Contd…
 Each department is comprised of
individuals who are responsible for
particular tasks or managerial functions.
 The Managers of subunits should
ensure that people in their department
are striving toward the same overall
goals which leads to GOAL
CONGRUENCE.
Responsibility Centers
 The basis of a responsibility accounting
system is the designation of each subunit
in the organisation as a particular type of
RESPONSIBILITY CENTRE.
 A responsibility centre is an
organisation’s subunit whose manager is
held accountable for the costs incurred
in the subunit.
Types of responsibility centers
 Cost center
 Revenue center

 Profit center

 Investment center
1.Cost center
A cost center is an organisational
subunit whose manager is held
accountable for the costs incurred
in his subunit.
Example: The painting department in
an automobile plant.
2. Revenue Center
The manager of a revenue center is
held accountable for the revenue
attributed to the subunit.
Example :Reservations department of
an airline and sales department of
a manufacturing organisation.
3.Profit Center
 A profit center is an organisational
subunit whose manager is held
accountable for profit. Since profit is
equal to revenue – expenses ,he is held
accountable for both the revenue and
expenses.
Example :A company owned restaurant in
a fast food chain.
4.Investment Centre.
The manager of an investment
center is held accountable for the
subunit’s profit and the
invested capital used by the
subunit to generate its profit.
Example :A division of a large
corporation.
Performance Reports
 The performance of each responsibility
center is summarised periodically on a
performance report.
 It shows the budgeted and actual
amounts and the variances betweens
these amounts of key financial results
appropriate for the type of responsibility
center involved.
Contd…
 The data in a performance report
help managers use MANAGEMENT
BY EXCEPTION to control an
organisation’s operations effectively.
 Thus budgeting, variance analysis
and responsibility accounting are
closely interrelated.