12-1

12 Chapter Twelve

Responsibility Accounting,
Quality Control, and
Environmental Cost
Management
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Responsibility Centers
A
A subunit
subunit in
in an
an organization
organization whose
whose
manager
manager is is held
held accountable
accountable forfor
specified
specified financial
financial results.
results.

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Responsibility Centers
Cost
Cost Center
Center Revenue
Revenue Center
Center
S
Segment
egment has
has Segment
Segment
control
control over
over is
is responsible
responsible
the
the for
for the
the revenue
revenue of
of
incurrence
incurrence of
of
costs. aa unit.
unit.
costs.

The Paint Department The Reservations

in an automobile plant. Department of an airline.
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Responsibility Centers
Profit
Profit Center
Center Investment
Investment Center
Center
Segment
Segment has
has Segment
Segment has has
control
control over
over control
control over
over profits
profits
both
both costs
costs and
and invested
invested
and
and revenues.
revenues. capital.
capital.

Company-owned restaurant A division of a

in a fast-food chain. large corporation.
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Measuring Management Performance

Evaluation Tool
Cost Cost
Center standards
Contribution
Profit
income
Center
statement
Rate of return
Investment on invested
Center funds or
residual income
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Performance Reports
Shows
Shows the
the budgeted
budgeted and
and actual
actual
amounts,
amounts, and
and the
the variances
variances
between
between these
these amounts,
amounts, of of key
key
financial
financial results
results appropriate
appropriate for
for
the
the type
type of
of responsibility
responsibility center.
center.

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

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

Controllability

Information Motivating
versus Desired
Blame Behavior

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Segmented Reporting

A
A segment
segment isis any
any
part
part or
or activity
activity of
of
an
an organization
organization
about
about which
which aa
manager
manager seeks
seeks
cost,
cost, revenue,
revenue, oror
profit
profit data.
data. The Operating Section
of a hospital

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Segmented Reporting
Product
C e ll P h o n e Lines
D iv is io n •

S y s te m s P e rso n a l

U .S . S a le s F o r e ig n S a le s U .S . S a le s F o r e ig n S a le s

•
Sales
Territories
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Key Features of Segmented

Reporting


Contribution
Contribution format.
format.

Controllable
Controllable versus
versus uncontrollable
uncontrollable expenses.
expenses.

Segmented
Segmented income
income statement.
statement.

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Segmented Income Statement

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

Costs
Costs that
that cannot
cannot be
be controlled
controlled byby
the
the segment
segment manager
manager are
are isolated.
isolated.
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Customer Profitability Analysis

and Activity-Based Costing
Let’s 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.

Company
Customer Sales Rep
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Total Quality Management

Design

Grade Conformance

Quality

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Total Quality Management

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

Quality
Qualityof
of Quality
Qualityof
of Judged
Grade
Grade Requires a Design
Design Must be sup- Conformance
Conformance by . . .
certain . . . ported by . . .

Product meets
customer expectations
for the grade level chosen. Customers

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Cost of Quality
Quality
Quality costs
costs include
include the
the follows:
follows:

 Prevention
Prevention costs,
costs,
 Appraisal

Appraisal costs,
costs,
 Internal

Internal failure
failure costs,
costs, and
and
 External

External failure
failure costs.
costs.

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Traditional Perspective of Product Quality

Costs
Total
Quality
Costs

Prevention
and Failure
Appraisal Costs
Costs

Percentage of
Defective
0% Minimum 100% Products

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Quality Cost Reports

A graphic Quality Cost Report might look like this:

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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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