Responsibility accounting is a system that assigns revenues and costs to responsibility centers based on who has responsibility over that area. It collects both planned and actual accounting information for these centers. Key features include identifying responsibility centers, assigning controllable costs, setting targets, comparing actual to planned performance, and reporting deviations. Responsibility centers can be cost centers, profit centers, or investment centers depending on if they are responsible for costs, revenues, or both. This system aims to improve performance by assigning responsibility and enabling better planning, control, decision-making, and management by exception. However, it requires proper organizational structure and delegation for successful implementation.
Responsibility accounting is a system of dividing an organization into similar units, each of which is to be assigned particular responsibilities. These units may be in the form of divisions, segments, departments, branches, product lines and so on. Each department is comprised of individuals who are responsible for particular tasks or managerial functions. The managers of various departments should ensure that the people in their department are doing well to achieve the goal. Responsibility accounting refers to the various concepts and tools used by managerial accountants to measure the performance of people and departments in order to ensure that the achievement of the goals set by the top management.
Responsibility accounting, therefore, represents a method of measuring the performances of various divisions of an organization. The test to identify the division is that the operating performance is separately identifiable and measurable in some way that is of practical significance to the management. Responsibility accounting collects and reports planned and actual accounting information about the inputs and outputs of responsibility centers.
This presentation is made by Toran Lal Verma. Meaning, nature, and scope of Financial Management are discussed. scope and objectives of financial management have been discussed along with merits and demerits.
Responsibility accounting is a system of dividing an organization into similar units, each of which is to be assigned particular responsibilities. These units may be in the form of divisions, segments, departments, branches, product lines and so on. Each department is comprised of individuals who are responsible for particular tasks or managerial functions. The managers of various departments should ensure that the people in their department are doing well to achieve the goal. Responsibility accounting refers to the various concepts and tools used by managerial accountants to measure the performance of people and departments in order to ensure that the achievement of the goals set by the top management.
Responsibility accounting, therefore, represents a method of measuring the performances of various divisions of an organization. The test to identify the division is that the operating performance is separately identifiable and measurable in some way that is of practical significance to the management. Responsibility accounting collects and reports planned and actual accounting information about the inputs and outputs of responsibility centers.
This presentation is made by Toran Lal Verma. Meaning, nature, and scope of Financial Management are discussed. scope and objectives of financial management have been discussed along with merits and demerits.
Activity based costing is considered to be useful only for Manufacturing Organizations whereas reality is that it is equally usefull to Service providers
A power point presentation describing some basic definitions, father of cost accounting, Indian aspect of cost accounting and Various Methods and Techniques of costing.
Presented by: Aquib Ali, Ajay Gupta and Ashwin Showi. (M.Com students)
at the Bhopal School of Social Sciences(BSSS) on 6 September, 2017
1.1 identify the type of accounting
1.2 difference between Cost Accounting , Cost Accountancy and Costing
1.3 understand the Management information needs
1.4 identify the objectives of cost accounting
1.5 difference between Cost Accounting Vs. Financial Accounting
1.6 identify the role of cost accountant
Let's today to know something about Dividend...... A dividend is an extra income to dividend holder which totally tax-free in hands of Receiver which is considered the source of income.
International Financial Reporting Standards (IFRS) are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries.
IFRS were issued by the Board of the International Accounting Standards Committee (IASC), known as International Accounting Standard Board(IASB).
Activity based costing is considered to be useful only for Manufacturing Organizations whereas reality is that it is equally usefull to Service providers
A power point presentation describing some basic definitions, father of cost accounting, Indian aspect of cost accounting and Various Methods and Techniques of costing.
Presented by: Aquib Ali, Ajay Gupta and Ashwin Showi. (M.Com students)
at the Bhopal School of Social Sciences(BSSS) on 6 September, 2017
1.1 identify the type of accounting
1.2 difference between Cost Accounting , Cost Accountancy and Costing
1.3 understand the Management information needs
1.4 identify the objectives of cost accounting
1.5 difference between Cost Accounting Vs. Financial Accounting
1.6 identify the role of cost accountant
Let's today to know something about Dividend...... A dividend is an extra income to dividend holder which totally tax-free in hands of Receiver which is considered the source of income.
International Financial Reporting Standards (IFRS) are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries.
IFRS were issued by the Board of the International Accounting Standards Committee (IASC), known as International Accounting Standard Board(IASB).
Notes on Responsibility Accounting ,Management Accounting ,Cost Center,Profit Center, Investment Center.Advantages to the Company .Responsibility accounting is one of the important control systems in large companies. This system comprises of responsibilities, accountability and performance evaluation. It measures the performance of various divisions of an organization.Responsibility accounting is a method of collecting and reporting both budgeted and actual costs and revenue by divisional managers who are responsible for it. Budgeting and standard costing are important part of responsibility accounting.
Bangalore University - M.Com III Sememster - Accounting and Taxation specialization - Accounting for Managerial Decisions (AMD) - Module 3 - Responsibility Accounting and Divisional Performance Measurement - Theory with Formats and examples.
Management Accounting studies the preparation and use of cost accounting information for managerial decision-making and control purposes. This course provides students with the tools needed to understand and address the important problems facing management accountants today. In order to keep up with the class, students should go over the relevant chapters and problems prior to each class. This must then be followed by a more in-depth review of the material and practice of problems after the class.
Chapter 8Responsibility Concepts and Sound Decision-Making Ana.docxchristinemaritza
Chapter 8
Responsibility Concepts and Sound Decision-Making Analytics
Image of multicolored canvas painting.
istockphoto
Learning Objectives
Understand concepts in responsibility accounting.
Be able to provide a framework for rational business decision making, and understand how to apply these concepts for specific types of situations.
Apply capital budgeting methods and discounted cash flow concepts.
Know how to make proper long-term investment decisions.
8.1
Responsibility Accounting Concepts
In general, managers should be held accountable for the results of their decisions and business execution. Without accountability based on performance-related feedback, the business will not perform at its best, and areas in need of improvement may not be identified on a timely basis. Business feedback is often based on financial results. You have already seen how budgets and variances are used to help identify areas for improvement. Because managers are accountable for their decisions, actions, and outcomes, their performance measures should align around the department, product, division, or other business for which they are responsible. In other words, the attribution of responsibility tends to follow the organizational structure of the business.
Sometimes, a business has a highly dispersed design, with decisions nested with lower level managers. Other businesses generate decisions only at the upper levels, and lower level personnel are basically charged with execution of defined actions. Proper implementation of responsibility accounting concepts stipulates that performance measures be aligned with the business organization structure. In other words, accountability should map to responsibility. Proper design of performance measurement systems therefore requires that the management accountant carefully consider the organizational structure. Sometimes performance measures are only appropriate on an aggregated basis, such as where the organization is structured as a top–down, command-and-control, centralized decision-making entity. As lower level managers are given increased authority, so too should the accountability system be modified to provide more disaggregated performance measures. Although quite logical, this presents measurement challenges.
Different types of units must be evaluated using alternative models. For example, some units do not generate any revenue. They exist to provide support services to other departments within the entity. Other business segments may have clear cost and revenue functions, and they might be evaluated on their profits. Given this observation, it is common for businesses to characterize areas of specific responsibility as cost centers, profit centers, or investment centers.
A cost center usually lacks clear revenue functions. Typical departments that are regarded as cost centers include accounting, human resources, maintenance, and most administrative groupings. Cost control is the key eval ...
Module - BackgroundTRANSFER PRICING AND RESPONSIBILITY CENTERSIlonaThornburg83
Module - Background
TRANSFER PRICING AND RESPONSIBILITY CENTERS
Modular Learning Objectives
Keep the following objectives in mind as you work through the material in this module:
· Define the role of responsibility accounting.
· Differentiate between controllable and uncontrollable costs.
· Analyze structure of a decentralized organization.
· Define profit centers, cost centers, and investment centers.
· Compute transfer prices.
· Identify three main transfer pricing approaches.
Required Reading
This module covers the role of responsibility accounting and responsibility centers. Explore these topics further while keeping the above six objectives in mind. Click on the three arrows to explore each topic in more detail:
The term responsibility accounting refers to an accounting system that collects, summarizes, and reports accounting data relating to the responsibilities of individual managers. A responsibility accounting system provides information to evaluate each manager on the revenue and expense items over which that manager has primary control (authority to influence).
A responsibility accounting report contains those items controllable by the responsible manager. When both controllable and uncontrollable items are included in the report, accountants should clearly separate the categories. The identification of controllable items is a fundamental task in responsibility accounting and reporting.
To implement responsibility accounting in a company, the business entity must be organized so that responsibility is assignable to individual managers. The various company managers and their lines of authority (and the resulting levels of responsibility) should be fully defined. Not all managers have equal authority and responsibility. The degree of a manager’s authority varies from company to company.
The controllability criterion is crucial to the content of performance reports for each manager. For example, at the department supervisor level, perhaps only direct materials and direct labor cost control are appropriate for measuring performance. A plant manager, however, has the authority to make decisions regarding many other costs not controllable at the supervisory level, such as the salaries of department supervisors. These other costs would be included in the performance evaluation of the store manager, not the supervisor.
Watch this short video to further explain the concept of responsibility accounting. https://www.youtube.com/watch?time_continue=1&v=EsS0socI3I4
Decentralization is the dispersion of decision-making authority among individuals at lower levels of the organization. In other words, the extent of decentralization refers to the degree of control that segment managers have over the revenues, expenses, and assets of their segments. When a segment manager has control over these elements, the investment center concept can be applied to the segment. Thus, the more decentralized the decision-making is in an organization the more appli ...
Instructions for Submissions thorugh G- Classroom.pptxJheel Barad
This presentation provides a briefing on how to upload submissions and documents in Google Classroom. It was prepared as part of an orientation for new Sainik School in-service teacher trainees. As a training officer, my goal is to ensure that you are comfortable and proficient with this essential tool for managing assignments and fostering student engagement.
Synthetic Fiber Construction in lab .pptxPavel ( NSTU)
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Model Attribute Check Company Auto PropertyCeline George
In Odoo, the multi-company feature allows you to manage multiple companies within a single Odoo database instance. Each company can have its own configurations while still sharing common resources such as products, customers, and suppliers.
Welcome to TechSoup New Member Orientation and Q&A (May 2024).pdfTechSoup
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Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
How to Split Bills in the Odoo 17 POS ModuleCeline George
Bills have a main role in point of sale procedure. It will help to track sales, handling payments and giving receipts to customers. Bill splitting also has an important role in POS. For example, If some friends come together for dinner and if they want to divide the bill then it is possible by POS bill splitting. This slide will show how to split bills in odoo 17 POS.
This is a presentation by Dada Robert in a Your Skill Boost masterclass organised by the Excellence Foundation for South Sudan (EFSS) on Saturday, the 25th and Sunday, the 26th of May 2024.
He discussed the concept of quality improvement, emphasizing its applicability to various aspects of life, including personal, project, and program improvements. He defined quality as doing the right thing at the right time in the right way to achieve the best possible results and discussed the concept of the "gap" between what we know and what we do, and how this gap represents the areas we need to improve. He explained the scientific approach to quality improvement, which involves systematic performance analysis, testing and learning, and implementing change ideas. He also highlighted the importance of client focus and a team approach to quality improvement.
The Art Pastor's Guide to Sabbath | Steve ThomasonSteve Thomason
What is the purpose of the Sabbath Law in the Torah. It is interesting to compare how the context of the law shifts from Exodus to Deuteronomy. Who gets to rest, and why?
The French Revolution, which began in 1789, was a period of radical social and political upheaval in France. It marked the decline of absolute monarchies, the rise of secular and democratic republics, and the eventual rise of Napoleon Bonaparte. This revolutionary period is crucial in understanding the transition from feudalism to modernity in Europe.
For more information, visit-www.vavaclasses.com
How to Create Map Views in the Odoo 17 ERPCeline George
The map views are useful for providing a geographical representation of data. They allow users to visualize and analyze the data in a more intuitive manner.
We all have good and bad thoughts from time to time and situation to situation. We are bombarded daily with spiraling thoughts(both negative and positive) creating all-consuming feel , making us difficult to manage with associated suffering. Good thoughts are like our Mob Signal (Positive thought) amidst noise(negative thought) in the atmosphere. Negative thoughts like noise outweigh positive thoughts. These thoughts often create unwanted confusion, trouble, stress and frustration in our mind as well as chaos in our physical world. Negative thoughts are also known as “distorted thinking”.
2. MEANING AND DEFINITION OF REPONSIBILITY
ACCOUNTING
• Responsibility accounting is a system of accounting
that recognizes various responsibility centres
throughout the organization and actions of each of
these centres by assigning particular revenues and
costs to the one having the pertinent responsibility. It
is also called profitability accounting and activity
accounting.
Charles,
T.Horngreen
• Responsibility accounting is that type of
management accounting that collects and reports
both planned actual accounting information in terms
of responsibility centres.”
Anthony
3. FEATURES OF RESPONSIBILITY ACCOUNTING
1. INPUTS AND OUTPUTS OR COST AND REVENUE: The implementation
and maintenance of responsibility accounting system is based upon
information relating to inputs and outputs. Inputs expressed In the
monetary term are known as cost and output expressed in monetary
terms are called revenue.
2. PLANNED AND ACTUAL INFORMATION OR USAGE OF BUDGETING:
Effective responsibility accounting requires both planned and actual
financial information . It is not only the historical cost and revenue
data but also the planned future data which is essential for the
implementation of responsibility accounting system . It is through
budget that responsibility for implementing the plans is
communicated to each level of management.
3. IDENTIFICATION OF RESPONSIBILITY CENTRES : For effective control
,a large firm is usually ,divided into meaningful segments
,departments or divisions of organization are called responsibility
centres . Responsibility centres are usually classified under three
4. 4. RELATIONSHIP BETWEEN ORGANISATION STRUCTURE AND RESPONSIBILITY
ACCOUNTING SYSTEM :A sound organization structure with clearcut lines
of authority –responsibility relationship is a prerequisite for establishing a
successful responsibility accounting system.Further ,responsibility
accounting system must be so designed as to suit the organisation
structure of the organisation.
5. ASSIGNING COST TO INDIVIDUALS AND LIMITING THEIR EFFORTS TO
CONTROLABLE COSTS : Only those costs and revenues over which an
individual has a definite control can be assigned to him for evaluating his
performance .Responsibility accounting has an appeal because it
distinguishes between controllable and uncontrollable cost
CONTROLABLE COST : are those costs which can be controlled or
influenced by a specified person or a level of management of an
undertaking.
UNCONTROLABLE COST : are those which cannot be so controlled or
influenced by the action of specified individual or undertaking.
5. 7. PERFORMANCE REPORTING :As responsibility account is a control device
.A control system to be effective should be such that plans must be reported
at the earliest so as to take corrective action for the future. The deviations
can be known only when performance is reported . Thus ,responsibility
accounting system is focused on performance reports also known as
‘responsibility reports’ ,prepared for each responsibility unit.
8. PARTICIPATIVE MANAGEMENT: The function of responsibility accounting
system becomes more effective if participative or democratic style of
management is followed ,wherein ,the plans are laid or budgets/standards
are fixed according to the mutual consent and the decisions reached after
consulting the subordinates. It provides motivation to the workers by
ensuring their participation and self imposed goals.
9. MANAGEMENT BY EXCEPTION : An effective responsibility accounting
system must provide for management be exception, i.e., it should focus
attention of the management on significant deviations and not burden them
with all kinds of routine matters condensed reports requiring their attention
must be sent to them particularly at higher levels of management.
6. STEPS INVOLVED IN RESPONSIBILITY
ACCOUNTING
1. The organisation is divided into various responsibility centres each
responsibility centre is put under the charge of responsibility manager.
The manger are responsible for the performance of their department.
2. The targets of each responsibility centre are set in. the targets or goals
are set in consultation with the manager of the responsibility centre so
that he may be able to give full information about his department. The
goal of the responsibility centres are properly communicated to them.
3. The actual performance of each responsibility centre is recorded and
communicated to the executives concerned and the actual performance
is compared with goals set and it helps in assessing the work of these
centres.
4. If the actual performance of a department is less than the standard set,
then the variances are conveyed to the top management . The names of
those persons who were responsible for that performance are also
conveyed so that responsibility may be fixed.
7. 5. Timely action is taken to take necessary corrective measures so that
the work does not suffer in future. The directions of the top level
management are communicated to the concerned responsibility
centre so that corrective measure are initiated at the earliest.
8. TYPES OF RESPONSIBILITY CENTRES:
1.Cost or Expense Centre: Cost centres are segments in which managers are
responsible only for the cost incurred but have no revenue responsibilities. The
performance of a cost centre is measured in terms of quantity of inputs used in
producing a given level of output. A comparison between the actual input used and
predetermined budgeted inputs is made to determine the variances which represent
the efficiency of the cost centre. Cost centres can be further classified on the basis
of
(a)Types of cost
(b)Functions performed
Expense/Cost centre
(classificationon basis of type of cost)
Engineered expense
centres
Discretionary expense
centre
9. EXPENSE OR COST CENTRE
(CLASSIFICATION ON FUNCTIONAL BASIS)
Production cost
centre
Service cost
centre
Ancillary cost
centre
Administrative
and support
centre
Research and
Development
centre
Marketing
centre
2.PROFIT CENTRE :
Responsibility centres may have both inputs and outputs. The inputs are
taken as cost and outputs are revenues. The difference between the revenue
and cost gives the profit. When a responsibility centre gets revenue from
output, it will be called a profit centre .When the output is meant for
outsiders ,then the revenue will be measured from the price charged from
customers and if the output is meant for other responsibility centre ,then the
management takes a decision whether to treat it as profit centre or not.
10. SUITABILITY OF PROFIT CENTRE :
Establishment of profit centre may be suitable if the following conditions are
satisfied:
There exist a decentralized form of organization.
The divisional manager has access to all relevant information needed for decision
making.
The divisional manager is sufficiently independent.
Internal transfer of output from one division/centre to another division are not
significant.
A definite measure of performance is available.
ADVANTAGES OF PROFIT CENTRE :
Establishment of profit centre offers the following advantages
It encourages initiative as a manager of profit centre is subject to a lesser degree of
control of the top management.
It may improve the quality of decisions.
It quickens the decision making process as these need not be referred to top
management.
It saves time of the top management.
It enhances profit consciousness in the entire organization.
It promotes competition amongst managers of various profit centres and improves
their performance.
It helps in training divisional managers for top management responsibilities.
11. DISADVANTAGES OF PROFIT CENTRES:
Loss of top management control over different divisions.
Faulty decision at divisional level .
Conflict among individual interests of divisions and the organization as a whole.
Too much emphasis on short term profitability
Increased cost due to multiple requirement of facilities and personnel at each profit
centre.
Transfer pricing problems amongst profit centres.
INVESTMENT CENTRE:
“An investment centre is an entity segment in which a manager can control not only
revenue and cost but also investment ”.The manager is made responsible for properly
utilizing the assets used in his centre and earn fair return on the amount employed in
assets in his centre .The performance of an investment centre can be measured by
relating profit to the investment base. The two commonly used methods are as
follows:
1.RETURN ON INVESTMENT/CAPITAL EMPLOYED
It establishes the relationship between profits and capital employed.The
term capital employed refers to the total investment made in the investment
centre/business .
RETURN ON CAPITAL EMPLOYED = NET PROFIT(BEFORE TAX)CAPITAL EMPLOYED
100
12. Or, ROI = NET PROFIT
SALES
SALES
CAPITAL
EMPLOYED
100
Or, ROI = NET PROFIT RETIO CAPITAL TURNOVER RATIO
(WHERE , NET PROFIT = TOTAL ASSETS
– CURRENT LIABILITIES)
2.ECONOMIC VALUE ADDED/RESIDUAL INCOME APPROACH
Economic value added is a measure of performance evaluation the was originally
employed by Stern Stewart and Co . It is a popular method used to measure the
surplus value created by an investment or portfolio of investments . It is considered
to be a better measure of divisional performance as compared to return on
investment or assets.
EVA = NET OPERATING PROFIT AFTER TAX – COST OF CAPITAL
CAPITAL INVESTED
Or, EVA = CAPITAL EMPLOYED (Return on investment- cost of capital)
According to this approach an investment can be accepted if surplus(EVA) is
positive . It is only the positive EVA that will add value and enhance the
wealth oF shareholders.
13. ADVANTAGES OF RESPONSIBILITY ACCOUNTING
1. Assigning of Responsibility: Each and every individual in the
organization is assigned some responsibility and they are accountable
for there work. Everybody knows what is expected of him. The
responsibility can easily be identified as satisfactory and unsatisfactory
performances of various persons are known. Nobody can shift
responsibility to anyb0ody else if something goes wrong. So, under this
system responsibility is assigned individually.
2. Improves Performance: The assigning of tasks to specific persons acts
as a motivational factor too. The persons in charge for different
activities know that their performance will be reported to the top
management. They will try to improve their performance. On the other
hand, it acts as a deterrent for low performance also because persons
know that they are accountable for their work and they will have to
explain for their low performance.
3. Helpful in Cost Planing; Under the system of responsibility accounting ,
full information is collected about costs and revenues. This data is
helpful in planning of future costs and revenues, fixing of standards and
preparing of budgets.
14. 4. Delegation and Control: This system enables management to delegate
authority while retaining overall control. The authority is delegated
according to the requirements of the task assigned. On the other hand,
responsibility of various persons is fixed which is helpful in controlling their
work. The control remains with top management because performance of
every cost centre is regularly reported to it. So management is able to
delegate authority and at the same time to retain control.
5. Helpful in Decision-Making: Responsibility accounting is not only a
control device but also helpful in decision-making. The information
collected under this system is helpful to management in planning its future
actions. The past performance of various cost centres also helps in fixing
their future targets. So this system enables management to take important
decisions.
15. LIMITATIONS ON RESPONSIBILITY
ACCOUNTING
THE PREREQUISITES FOR A SUCCESSFUL RESPONSIBILITY
ACCOUNTING SYSTEM ARE :
a. A SOUND ORG. STRUCTURE WHERE DIVISIONS CAN BE
IDENTIFIED CLEARLY AS RESPONSIBILITY CENTER
b. [ROPER DELEGATION OF WORK AND RESPONSIBILITY
c. A PROPER SYSTEM OF REPORTING
IF THESE CONDITIONS ARE ABSENT, IT IS DIFFICULT TO HAVE A
RESPONSIBILITY ACCOUNTING SYSTEM
THE TRADITIONAL WAY OF CLASSIFICATION OF EXPENSES
NEEDS TO BE SUBJECTED TO A FURTHER ANALYSIS WHICH
BECOMES DIFFICULT
IN INTRODUCING THE SYSTEM, CERTAIN MANAGERS MAY
REQUIRE ADDITIONAL CLASSIFICATION PARTICULARLY IF THE
RESPONSIBILITY REPORTS ARE DIFFERENT FROM ROUTINE
REPORTS