Responsibility accounting

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Responsibility accounting

  1. 1. Responsibility Accounting (RA)    One of the uses of Management Accounting is Management Control Among the different techniques RA plays a significant role in measuring divisional performance. RA collects and reports planned and actual accounting information about inputs and out puts of RC
  2. 2.  To determine the contribution of that Divisions/RCs  To provide the basis for evaluating the divisional performance  To motivate divisional managers
  3. 3. Cost Centers - responsible only to inputs (cost) • Performance is measured in terms of cost • Efficiency and effectiveness cannot be measured Profits centers- responsible to both inputs (cost) and outputs (revenues) • Performance is measured in terms of profits • Both efficiency and effectiveness can be measured
  4. 4.   One of the problems of profit centre is transfer pricing Transfer pricing may be either cost based or market based – at cost- transfer at actual cost or standard cost at cost plus a mark-up price- a profit margin is added to its cost. This is useful for profit center analysis. If it is decided with pre determine target , this is useless.
  5. 5.   market price- when there is an out side market, market price can be applied (subject to adjustment for selling price and discount) when there is no clear market- cost plus profit margin can be applied) market is not readily available- bids from several manufactures form the basis. negotiable price- mutually agreed price
  6. 6.  Performance can be measured : - ROI - Net income - Residual income

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