RESPONSIBILITY ACCOUNTING

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Responsibility accounting is an underlying concept of accounting performance measurement systems. The basic idea is that large diversified organizations are difficult, if not impossible to manage as a single segment, thus they must be decentralized or separated into manageable parts. These parts, or segments are referred to as responsibility centers. Common responsibility centers include : Revenue Centers Cost Centers Profit Centers Investment Centers
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Responsibility Accounting This approach allows responsibility to be assigned to the segment managers that have the greatest amount of influence over the key elements to be managed. a measure of profitability for profit center ( a segment that generates both revenue and costs ) return on Investment ( ROI ) for an investment center ( a segment such as a division of a company where the manager controls the acquisition and utilization of assets. These elements include revenue for revenue center (a segment that mainly generates revenue with relatively little costs). costs for a cost center ( a segment that generates costs. but no revenue). 5/16/2013 2 . as well as revenue and costs).

What are your daily expenses? An average of $50! If you have been spending this much for so many days. Standard costs are certain predetermined level of operational costs that are computed according to the qualities . We can call this as standard. In other words. based upon certain assumed conditions of efficiency. In the words of Backer and Jacobsen. The word standard means a benchmark or yardstick. a standard cost is a planned cost for a unit of product or service rendered. In simple terms control through costing is actually the method of cost accounting in which standard costs are used in recording the transactions and the actual costs are compared with the standard costs to find out the variations and reason behind such variations. 3 Meaning of Standard      5/16/2013 .” Definition The CIMA. economic conditions and other factors. prices and certain level of operations. then this is your daily standard expense. you must take some parameter or yardstick for measuring. London has defined standard cost as “a predetermined cost which is calculated from managements standards of efficient operations and the relevant necessary expenditure. The standard cost is a predetermined cost which determines in advance what each product or service should cost under given circumstances.CONTROL THROUGH COSTING   The main idea behind control through costing is to generate the control over the costs usually the standard cost. “Standard cost is the amount the firm thinks a product or the operation of the process for a period of time should cost. When you want to measure some thing.” They are the predetermined costs on technical estimate of material labor and overhead for a selected period of time and for a prescribed set of working conditions.

2. The standards are set for different components of the costs separately and are fixed on the basis of past records.PROCESS OF CONTROL THROUGH COSTING 1. The process may involve careful scrutiny and analysis of the existing standards and revising them whenever desired. Actual Cost : In this step the actual cost is calculated from the various records in order to make certain types of comparisons. Comparisons : This step involves the comparison between actual cost and the standards that have generated in order to find out the variations if they occur and cause of such variations. 3. 4. 5/16/2013 4 . Remedial Action : After finding the cause of variations the future cause of action is planned to remove such variations. Fixation of Standards : Standards are the benchmarks against which the comparisons would be made.

objective assurance and consulting activity designed to add value and improve an organization's operations. disciplined approach to evaluate and make recommendations for improvement over the risk management.  5/16/2013 5 . internal control and governance processes. In other words Internal Audit is an Independent.INTERNAL AUDIT  Internal Audit is an independent appraisal of operations. to assess the effectiveness of internal administrative and accounting controls and help ensure conformance with managerial policies. It helps an organization accomplish its objectives by bringing a systematic. conducted under the directions of agency management.

Tools For Operational Control TQM ( TOTAL QUALITY MANAGEMENT ) “ TQM is an integrated organizational approach in delighting customers (both internal and external) by meeting their expectations on a continuous basis through everyone involved with the organization working on continuous improvement in all products.  5/16/2013 6 . services and processes along with proper problem solving methodology.” Indian Statistical Institute TQM is a corporate business management philosophy which recognizes that customer needs and business goals are inseparable. It ensures that every aspect of the business is aligned to the customer needs and the advancement of business goals without duplication or waste of efforts. TQM ensures maximum effectiveness and efficiency within a business and secure commercial leadership by putting in place processes and systems which will promote excellence and prevent errors.

Daily Management : Managing day to day activities of the organization in the most effective manner in order to generate maximum efficiency is the major aim of Daily Management. Team Activity : This concept encourages the team activity in the organization according to which the group decision making is considered to be most important for the success of the organization. or Hoshin Kanri ( in Japanese). 7 5/16/2013 . management by policy.Process Components Of TQM    Policy Management : It is sometimes. Policy Management is a systematic process used to direct corporate resources towards solving problems and making major improvements. referred as policy deployment.

mutual development.” The quality circle is a small group of people who voluntarily perform quality improvement activities within the workshop or workarea to which they belong. analyse and resolve work related problems.QUALITY CIRCLES “Quality Circles is a small group of employees in the same work area or doing a similar type of work who voluntarily meet regularly for about an hour every week to identify. control and improvement within the workshop or work area is brought by employing different quality management techniques. leading to improvement in their total performance and enrichment of their worklife. Various quality improvement activities. 5/16/2013 8 . selfdevelopment.

Normal control is used and good records are maintained. These parts represent 10% of the total value. D – Items in this category include those which are discontinued products. B – Items included in this category are the priority when low or out of stock. simplest method of control. C – Items in this category are the lowest priority list. requires frequent deliveries. 5/16/2013 9 .Tools For Inventory Control ABC ( Always Better Control ) Analysis A – In this category those items are placed which are in the highest priority list need the tightest control. Min/Max is used for ordering them. These items account for 20% of the total inventory value. and 20% of the inventory. Their volume accounts for 70% of the total inventory value. close follow-up and accurate records. and 70% of the volume.

” The model was originally developed by F. Quantity discounts are not calculated as the part of the model Shortages or stockouts do not occur. The lead time(a lead time is the latency (delay) between the initiation and execution of a process. It is defined as the “ Model that defines the optimal quantity to order that minimizes total variable costs required to order and hold inventory. Wilson is credited for his early in depth analysis of the model. The receipt of the order occurs in a single instant.ECONOMIC ORDER QUANTITY  Economic Order Quantity is also known as the wilson EOQ Model or simply the EOQ Model. 5/16/2013 10 . W. ) is known and fixed. Underlying Assumptions:-      The demand of the item is known. Harris in 1915.H. For example. the lead time for ordering a new car from a manufacturer may be anywhere from 2 weeks to 6 months. though R.

It may also be defined as : A manufacturing system whose goal it is to optimize processes and procedures by continuously pursuing waste reduction.JUST IN TIME  Just In Time is an inventory strategy implemented to improve the return on investment of a business by reducing in process inventory and its associated costs. A strategy of inventory management in which raw materials and components are delivered from the vendor or supplier immediately before they are needed in the manufacturing process.   5/16/2013 11 .

JUST IN TIME          The basic idea behind JIT is Eliminating waste and adding value. Waste of overproduction Waste of waiting Waste of transportation Waste of processing Waste of stocks Waste of motion .any movement of people or machines Waste of Making Defective Products 5/16/2013 12 . JIT is based on Shingo’s seven wastes.

A Gantt Chart is a popular type of bar chart . span of project.  5/16/2013 13 . an american engineer and social scientist. broken down into increments ( for example days. A Gantt Chart is constructed with horizontal axis representing the total time. Frequently used in project management . weeks or months) and a vertical axis representing the tasks that make up the project.GANTT CHARTS  A Gantt Chart is a horizontal bar chart developed as a production control tool in 1917 by Henry L . coordinate and track specific tasks in a project. a gantt chart provides a graphical illustration of a schedule that helps to plan. Gantt charts using applications such as Microsoft Project or Excel. that aims to show the timing of tasks or activities as they occur over time. Gantt.

Material Requirements Planning   A system of planning and scheduling the time-phased materials requirements for production operations as such. 5/16/2013 14 . availabilities and production actions required to meet delivery deadlines. production can give marketing information about likely delivery times to prospective customers. in order to meet the master schedule. timings. Reduction in production and delivery lead times : MRP identifies the components their quantities. MRP OBJECTIVES AND METHODS :Inventory Reduction: MRP determines how many of a components are needed and when. By using MRP . Increased Efficiency: MRP provides close coordination among centers as products progress through them. Realistic Commitments : Realistic delivery promises can enhances satisfaction. it is geared towards the end-item outputs prescribed in the master production schedule.

THANKS 5/16/2013 15 .

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