Responsibility centers
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Responsibility centers

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  • For example, a department manager in a retail store would report to their store manager, who would report to their district manager, who would then report to the president of the company.
  • Usually either a service department or a production department. For example, human resources or assembly.
  • “Only controllable costs are included in the report, and no distinction is made between variable and fixed costs.” (Kieso, Kimmel, Weygandt, 2003, p.356)
  • For example, the individual reporting department of a retail store.
  • The responsibility report for a profit center is prepared using the cost-volume-profit income statement.
  • Mostly used for companies with different product lines or in company expansion.
  • ROI Formula: Controlling Margin divided by Average Operating Assets equals Return on Investment.

Responsibility centers Responsibility centers Presentation Transcript

  • Accounting 220 Wendy Lile University of Phoenix
  •  All levels of management report cost and revenues  “Essential part of any effective system of budgetary control.” (Kieso, Kimmel, Weygandt, 2003, p.351)  3 types of Responsibility Centers: Cost, Profit, and Investment
  • Cost center: A responsibility center in which a manager is responsible only for costs.
  • Responsibility reports that compare flexible budget data with controllable costs.
  • Profit center: A responsibility center in which a manager is responsible for both revenues and costs.
  •  Distinguishing between direct and indirect fixed costs  Reporting budgeted and actual controllable revenues and costs
  • Investment center: A responsibility center in which a manager is responsible for revenues, costs, and investments.
  •  Reporting their Return on Investment (ROI). “The return on investment is considered to be superior to any other performance measurement because it shows the effectiveness of the manager in utilizing the assets at his or her disposal.” (Kieso, Kimmel, Weygandt, 2003, p.359)
  • ROI = Operating income Average operating assets Beginning net book value + Ending net book value 2
  • Responsibility accounting is a system that measures the results of each responsibility center according to the information managers need to operate their centers.
  • Kieso, D., Kimmel, P., Weygandt, J. (2003). Essentials of Accounting: Tools for Business decision making (2nd ed.) Hoboken, NJ: John Wiley and Sons, Inc.