RESPONSIBILITY ACCOUNTING & VERTICAL INTEGRATION Responsibility Accounting System of control where responsibility is assigned for the control of costs Emphasis is on men rather than on systems Also called profitability accounting and activity accounting Collects and reports both planned actual accounting information in terms of responsibility centres Essential Features Inputs and Outputs or Costs and Revenues Planned and Actual Information or Use of Budgeting Identification of Responsibility Centres - cost centres - profit centres - investment centres Assigning Costs to Individuals and Limiting their Efforts to Controllable Costs Transfer Pricing Policy Relationship between organisation structure and responsibility centres Advantages and Disadvantages Provides a way to motivate lower level managers and workers Provides a way to manage an organization that would otherwise be unmanageable Stovepipe organization Tend to compete to optimize their own performance measurements rather than working together to optimize the performance of the system Numeric Examples Vertical Integration When a company controls more than one stage of the supply chain Forward integration is when a company at the beginning of the supply chain controls stages farther along Backward integration is when a business at the end of the supply chain takes on activities "upstream." Four degrees of vertical Integration Full Vertical Integration Quasi Vertical Integration Long-term Contracts Spot Contracts Advantages Company doesn't have to rely on suppliers Suppliers have a lot of market power and can dictate terms Economies of scale , efficient “Knock off" the most popular brand-name products Low prices Disadvantages Expense – more investment Reduces flexibility Loss of focus Not likely that any company will have a culture that supports both retail stores and factories Numeric Example References McNair, C. J. and L. P. Carr, 1994. Responsibility redefined: Changing concepts of accounting-based control. Advances in Management Accounting: 85-117. Elliott, R. K. 1992. The third wave breaks on the shores of accounting. Accounting Horizons 6 (June): 61-85 Relevant Cost Relevant Cost Cost which are relevant for a particular business decision. They are not historical cost but future costs to be associated with different inputs and activities related a particular business decision(Ray Garrison, 2015) . Relevant Cost Relevant cost is expected future cost which differs for alternative course. Usually variable costs are relevant while fixed cost are non-relevant(Ray Garrison, 2015). Relevant Cost However, It is not essential that all variable cost are relevant and all fixed cost are irrelevant. Fixed or variable costs that differ for various alternatives are relevant costs(Ray Garrison, 2015) . Relevant Cost Relevant costs draw our alternation to those elements of cost which are relevant for decision ...