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.

1. RESPONSIBILITY ACCOUNTING
Introduction
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.
Elements of designing a system
There are mainly three dimensions in designing the process. These are being discussed below:
1.Establish Responsibility Centres:
1. Establishing Responsibility Centers: Responsibility centre is a segment of
organization for which manager is responsible. A large decentralized organization has
cost centres, revenue centres, profit centres, and investment centres.
a. Cost centre: Here manager is responsible for the costs incurred. When there are
unfavorable differences between actual costs and budgeted costs, he is responsible to find
variances related to cost.
b. Revenue centre: Here manager is responsible for generating revenues from sales as per
the budgeted levels.
c. Profit centre: Here manager is responsible for generating sales and production cost. The
difference between sales and cost is known as profit.
d. Investment centre: Here manager has the responsibility and control over the assets used
for business activities. The performance is evaluated by rate of return earned on capital
invested for acquiring assets.
2 Setting limits to Costs: Costs are collected and classified in the two groups i.e. controllable
and noncontrollable costs. Controllable cost can be increase or decrease by the manager of
responsibility centre like material cost, direct labour cost and operating supplies. He is
responsible to control both quantity and price. Uncontrollable costs cannot be increased or
decreased by the manager. But these can be changed at management level like fixed costs such
as rent, depreciation, and insurance on equipment.

2. 3. Flexible Budget: Responsibility accounting assumes that budgets are flexible. It can be for
different activity levels, instead of static level. Flexible budget allows comparison of actual
costs with budgeted costs that can be recast as per the volume of production.
4. Performance Report: Each responsibility centre has periodic report about its performance.
the feedback. Performance report includes actual cost, budgeted cost and variances.
Management consider these reports for taking corrective actions and for budgeting purpose.
Benefits of Responsibility Accounting
Responsibility accounting focuses at managerial levels and has importance management
control process. It has several benefits:
1.Responsibility accounting provides information related to cost, expenses, revenue, profit to
managers that helps in controlling operational activities and evaluating subordinate’s
performance.
2.Responsibility accounting allows proper delegation of authority to responsible manager.
3.It allows to use accounting information for planning and control. Managers are motivated for
better performance for evaluation process. Targets are provided and managers can increase
revenues or decrease costs in order to achieve it.
4.If performance is unsatisfactory, person responsible for it is identified and ask him to take
corrective actions.
5.Deparmental heads are assigned with definite objectives and targets for particular period of
time. They are held responsible for achievement of targets.
6.Performance reports helps to identify deviation areas. It helps mangers to work on variances
and find improvement areas.
7.Rewards are linked to the performance and it is morale booster for increasing efficiency.
Essentials for The Success of Responsibility Accounting
1. Support management through Participative budgeting: Managers should be responsive
to a budget which they have developed by negotiation between manager and supervisor.
2. System is based on Manager’s Responsibility. Manager is responsible for cost incurred
and expenditure done. Cost to be classified in controllable and non-controllable category. An
organization should establish objectives and goal which can be achieved. Proper delegation of
authority and responsibility. Timely reports and performance analysis help in appraisal of
system and facilitates internal auditing