Responsibility

Accounting
RESPONSIBILITY ACCOUNTING
 Responsibility accounting is the system for collecting and
reporting revenue and cost information by areas of
responsibility.
 It operates on the premise that managers should be held
responsible for their performance, the performance of
their subordinates, and all activities within their
responsibility center.
  1. It facilitates delegation of
 Responsibility decision making.
 2. It helps in management promote the
accounting, also concept of management by
objective. In management by objective
called profitability managers agree on a set of goals. The
manager’s performance is then
evaluated based on his or her
accounting and 
attainment of these goals.
3. It provides a guide to the
activity accounting, evaluation of performance and
helps to establish standards of
performance which are then used for
has the following comparison purposes.
 4. It permits effective use of the
advantages. concept of management by
exception, which means that the
manager’s attention is concentrated
on the important deviations from
standards and budgets.
Responsibility centers:
can be one of the following types.
 1. Cost center.
 A cost center is the unit within the organization which is
responsible only for costs.
 Examples include the production and maintenance
departments of a manufacturing company, and the admissions
department of a university.
 The appropriate goal of an expense center is the long-run
minimization of expenses. Short-run minimization of
expenses may not be appropriate.
 Variance analysis based on standard costs and flexible
budgets is a typical performance measure of a cost
center.
 2. Profit center.
 A profit center is the unit which is held responsible for
the revenues earned and costs incurred in that center.
 Examples might include a sales office of a publishing company,
an appliance department in a retail store, and an auto
repair center in a department store.
 The contribution approach to cost allocation is widely used
to measure the performance of a profit center.
 3. Investment center.
 An investment center is the unit within the
organization which is held responsible for the costs,
revenues, and related investments made in that
center.
 The corporate headquarters or division in a large
decentralized organization is an example of an investment
center.
 Return on investment(ROI) and residual income(RI) are two key
performance measures of an investment center.
 Outside of relatively large corporations, the cost center is
the most common building block for responsibility
accounting. In fact, the terms cost center and
responsibility center are often used interchangeably.
Coke and Its Bottlers: Two Units and Two
ROIs
What is Responsibility Accounting?