Responsibility Accounting for managers

1. Responsibility Accounting
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2. Responsibility Accounting
• Responsibility accounting is a kind of
management accounting that is accountable for
all the management, budgeting, and internal
accounting of a company. The primary objective
of this accounting is to support all the Planning,
costing, and responsibility centres of a company.
• The accounting generally includes the
preparation of a monthly and annual budget for
an individual responsibility centre.

7. Types of Responsibility centre
Cost Centre- A Cost Centre is a department or a
unit which supervises, allocates, segregates, and
eliminates all sorts of the cost related to a
company. The cost center prime work is to check
the cost of an organization and to limit the
unwanted expenditure the company may
acquire. The cost can be the determination of
both person and location. In multinational
companies, the cost center is authorized to
decrease and manage the cost.

8. Example #1 – Cost Centre
XYZ Healthcare Ltd. manufactures health supplements. They
aimed to manufacture 20,000 vitamin bottles in 2022. They
allocated a budget of $120,000 for this at the beginning of the
year. But, by the year-end, the actual production cost amounted
to $125,000. This results in an additional expenditure of $5,000
above the estimated budget. The production manager is thus
answerable for this difference in cost.

9. Revenue Centre
• This centre is accountable for initiating and
monitoring revenue. The management does
not have any control over the cost or
investment but can monitor a few of the
expenses in the marketing section. The
production of the revenue center is calculated
by analyzing the budgeted revenue with
actual revenue and actual marketing expenses
with budgeted marketing expenses.

10. Example #2 – Revenue Centre
• Delta Electronics Ltd. set a revenue goal of $110,000 from their gadgets
division for 2022. However, by the year-end, they made $108,000 in
revenue, marking a deficit of $2,000 in their expected revenue. The
manager of the gadgets division is required to explain the gap between
the expected and actual revenue.

11. • Profit Centre-It is a division or department of a
company which operates for the calculation of
profit. In an organization, different profit
centers are managed by the managers, who
identifies profits on the basis of costs and
incomes. Profit Centre is accountable for all
the actions associated with the sales of goods
and production.

12. Example #3 PROFIT CENTRE
• Omega Fashion Inc. had a profit target of $85,000 for its
apparel division. They, however, earned an actual profit of
$82,000, showing a $3,000 decrease.
• Following is the breakdown of the profit earned by each
division:

13. • Investment Centre- This center is responsible
for both investments and revenue. The
investment manager can control expenses,
income, the fund invested in assets, etc. He
also has the authority to form a credit policy,
which has an immediate impact on debt
collection.

14. Example #4 – Investment Centre
• Beta Investments predicted a return of 10% on
a $10,000 investment in real estate for 2022.
However, the actual return amounted to 9%,
equating to $9,000.

15. Advantages Disadvantages
Responsibility accounting provides a clear
framework for evaluating performance.
Identifying responsibility centers can be difficult
for complex organizations.
It helps maintain transparency in the
organization.
It only applies to controllable costs and doesn’t
consider uncontrollable costs.
This system facilitates better decision-making.
It can lead to inter-departmental conflicts and
blame culture.
It increases accountability among managers as
each person/department is assigned clear
responsibilities.
Generating reports for each responsibility
center requires a lot of time and resources.
It helps align individual and departmental goals
with the organization’s goals.
There is a potential for results manipulation by
managers.