Theories about Responsibility

Accounting , Transfer Pricing

and Balance Scorecard
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Responsibility center: is a part of the business whose manager is accountable for

specified activities
Responsibility accounting: is a system that measures the results of each
responsibility center and compares those results with expected or budgeted
outcomes.

Four Major Types of Responsibility Centers

 Cost center: a responsibility center in which a manager is responsible only for
costs

Production department within the factory, such as Assembly or Finishing

 Revenue center: a responsibility center in which a manager is responsible only

for revenues

Marketing Department mager sets prices and projected sales

 Profit center: a responsibility center in which a manager is responsible for

both revenues and costs

Plant managers are responsible for pricing and selling products they
manufacture

 Investment center: a responsibility center in which a manager is responsible

for revenues, costs and investments.

Theories about Responsibility Accounting , Transfer Pricing and Balance Scorecard 1

 Division managers can make investment decisions, such as plant closings
and openings and decisions to keep or drop a product line

💡 It is important to realize that while the responsibility center manager has

responsibility for only the activities of that center, decisions made by
that manager can affect other responsibility centers.

Decentralization
Centralized decision making: a system in which decisions are made at the top
level of an organization and local managers are given the change to implement
them.
Decentralized decision making: a system in which decisions are made and
implemented by lower-level managers.
Multinational corporation MNC a corporation for which a significant amount
of business is done in more than one country.

Theories about Responsibility Accounting , Transfer Pricing and Balance Scorecard 2