RESPONSIBILITY ACCOUNTING WITH SPECIAL REFERENCE TO STANDARD COSTING AND BUDGETARY CONTROL

1. SUBMITTED TO:
Dr. Amrit Lal Ghosh
Associate Professor
SUBMITTED BY:
Biswajit Bhattacharjee (19)

2. An accounting system that
provides information . . .
Relating to the
responsibilities of
individual managers.
To evaluate
managers on
controllable items.

3. 
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
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The areas of responsibility are well defined at
different levels of the organisation.
There are clearly set goals and targets for
each responsibility centre.
Accounting system generates correct and
dependable information for each
responsibility centre.
Managers must try to attain the goals and
objectives.

4. It is any part, segment, or subunit
of a business that needs control.
– production
– service

5. 

A responsibility center is the point in an
organization where the control over revenue
or expense is located, e.g.
division,department or a single machine.
A responsibility center may be divided into
three categories
◦ cost
◦ profit
◦ investment

6. Cost center
Investment center
Profit center

7. Types of Responsibility Centers
Cost Center
Responsibility
accounting is a cost
centre where the
manager is
accountable for the
costs that are under
his control but not
for its revenue.

8. Types of Responsibility Centers
Profit Center
Responsibility
accounting is a
profit centre
where the
manager is
accountable for
sales revenue as
well as cost.
Revenues
Sales
Interest
Other
Expenses
Manufacturing
Commissions
Salaries
Other

9. Types of Responsibility Centers
Investment Center
Responsibility
accounting is a
investment centre
where the manager is
accountable for sales
revenue and costs and
in addition is
responsible for some
capital investment.
Corporate Headquarters

10. 
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The morale of the managers is high because
of their active participation in decision
making.
Responsibility accounting provides increased
job satisfaction and greater motivation to put
in their best efforts.
It helps in quick reporting of performance
oriented results of management of various
levels.
Responsibility accounting facilitates stricter
control on costs and revenues.

11. 


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Standard costing is an important subtopic of
cost accounting. Standard costs are usually
associated with a manufacturing company's
costs of direct material, direct labor, and
manufacturing overhead.
Differences between the actual costs and the
standard costs is known as variances.
If actual costs are greater than standard costs
the variance is unfavorable.
If actual costs are less than standard costs the
variance is favorable.
The sooner that the accounting system reports
a variance, the sooner that management can
direct its attention to the difference from the
planned amounts.

12. 
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Set the predetermined standards for sales margin
and production costs
Collect the information about the actual
performance
Compare the actual performance with the
standards to arrive at the variance
Analyze the variances and ascertaining the causes
of variance
Take corrective action to avoid adverse variance
Adjust the budget in order to make the standards
more realistic
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13. 
Valuation
◦ Assigning the standard cost to the actual output

Planning

Controlling
◦ Use the current standards to estimate future sales
volume and future costs
◦ Evaluating performance by determining how
efficiently the current operations are being carried
out
13

14. 
Motivation
◦ Notify the staff of the management’s expectations

Setting of selling price
14

15. A major function of management is to control
operations
 One element is the use of budget reports which
compare actual results with planned objectives
 Provides management with feedback on operations


16. A fixed budget is one that is not
changed if the activity level
differs from the planned level
Disadvantage is that if the
actual activity level is higher
than planned, an adverse cost
variance may be due simply to
the increase in variable costs
at this level, so the budget
becomes irrelevant

17. A flexible budget is
designed to change with
the level of activity to
reflect the different
behaviour of fixed and
variable costs
Advantage is that any
cost variance can only
be due to an increase
or decrease in fixed
costs

18. 
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Co-ordination of all functions and activities
Responsibility accounting - information is provided
to managers responsible for revenue and expenditure
Utilisation of resources - capital and effort are used
to achieve the financial objectives
Motivation of managers through the use of clearly
defined objectives and monitoring of achievement
Planning ahead gives time to take corrective action
Establishes a system of control if plans are reviewed
regularly against actual
Transfer of authority to individual managers for
decisions
Business Accounting
18

19. 
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Set in stone - managers may be constrained by the
original budget (eg make no attempt to spend less
than maximum or exceed target income)
Time consuming process may deflect managers from
their prime responsibilities of running the business
Unrealistic if fixed budgets are set and actual activity
level is not as planned
Disillusioning for managers if fixed budgets are set
and not achieved merely due to changes in activity
Demotivating for managers if budgets are imposed
by top management with no consultation
Business Accounting
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20. 
An effective system of budgetary control helps
managers plan and control the use of resources
in a systematic and logical manner
◦ Planning helps co-ordinate the activities of the business
◦ Control is achieved through the frequent monitoring of
progress against the plan by managers of budget
centres, and taking corrective action where necessary

It is a communication system
◦ Financial objectives and constraints are communicated
to managers of budget centres and regular monitoring
keeps management informed of progress towards
objectives
Business Accounting
20