All levels of management report cost and
“Essential part of any effective system of
budgetary control.” (Kieso, Kimmel,
Weygandt, 2003, p.351)
3 types of Responsibility Centers: Cost, Profit,
Cost center: A responsibility center in which a
manager is responsible only for costs.
Responsibility reports that
compare flexible budget
data with controllable
Profit center: A responsibility center in which a
manager is responsible for both revenues and
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)
Average operating assets
Beginning net book value +
Ending net book value
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.