RESPONSIBILITY ACCOUNTING

Controlling such activities in details & in every sphere is not possible for the top management. For the purpose of controlling efficiently. The top management has the total authority & responsibility.CONCEPT • Large organizations have operating activities which are voluminous. . the total authority & responsibility is decentralized by forming small segments which are called responsibility centers.

the performance of each responsibility center is measured.Meaning • Responsibility accounting may be known as decentralization of responsibility center so that desired control can be ensured & thereby the goal of the organization can be attained. • In terms of revenues & costs. Responsibility accounting involves the following: • Entire organization is divided into small responsibility centers. . • In terms of its predetermined target. the responsibility of each responsibility center is fixed.

• At the end of a period. each of the small goals is meant for better achievement of a responsibility center. evaluation is done of the performance of each responsibility center & comparison of the performance is done with the predetermined targets.Objectives of RA • Overall organizational goals are broken down into small goals. . • With the attached responsibility each responsibility center is tied up & there is adequate authority so that responsibility can be discharged.

• . Use is made of the principle of ‘management by exception’ for the purpose of recording only those data where the actual performance of responsibility center falls short of the set target & where the variance is beyond the reasonable limit.• Emphasize is given on the control of cost through planning.

• It becomes easy to detect the weak areas in the organization. corrective measures are taken. thereby.Advantages: • The managers of responsibility centers worked independently which helps in achieving the ultimate goal. • There is a relationship between efforts & achievement. So for the purpose making the weak areas strong. . loopholes. if any. in the operations gets easily detected.

• For the purpose of exercising best managerial control over the affairs of the organization & achieving the desired goal. responsibility accounting system & budgetary control system can work together. • As managers of responsibility centers are allowed to sit with the top management for exchanging of views & opinions. appropriate decision making is almost assumed. .

and an auto repair center in a department store. a retail store of the firm. . Example : production and maintenance departments of a manufacturing company.Types of RA • COST CENTRE: A cost center is the unit within the organization which is responsible only for costs. • Examples : a sales office of a publishing company. • PROFIT CENTRE: A profit center is the unit which is held responsible for the revenues earned and costs incurred in that center.

An investment center is the unit within the organization which is held responsible for the costs. . The corporate headquarters or division in a large decentralized organization would be an example of an investment center. and related investments made in that center. revenues.• Investment center.

. • This causes competition between segments and individuals rather than cooperation and teamwork. • Decisions are based on self interest rather than the best interest of the system. • In modern organizations. among the departments.DISADVANTAGES: • The place of good management cannot be ever taken by the responsibility accounting because the latter is only a tool. inter-relations & inter-departments are mostly observed. So it becomes almost impossible to distinguish responsibility centers by clear-cut outlines.

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