Responsibility accounting is an accounting system that collects, summarizes, and reports accounting data according to the responsibility of individual managers. It seeks to provide information to evaluate each manager on the revenue and expense items over which he or she has primary control. Responsibility accounting enables management to pinpoint areas of weaknesses in the organization.
Responsibility accounting is an accounting system that collects, summarizes, and reports accounting data according to the responsibility of individual managers. It seeks to provide information to evaluate each manager on the revenue and expense items over which he or she has primary control. Responsibility accounting enables management to pinpoint areas of weaknesses in the organization.
Responsibility accounting is an accounting system that collects, summarizes, and reports accounting data according to the responsibility of individual managers. It seeks to provide information to evaluate each manager on the revenue and expense items over which he or she has primary control. Responsibility accounting enables management to pinpoint areas of weaknesses in the organization.
Responsibility Accounting refers to an accounting system that collects,
summarizes, and reports accounting data according to the responsibility of individual managers. It is an accounting system that seeks to provide information to evaluate each manager on the revenue and expense items over which he or she has primary control. Clear lines of authority and responsibility must exist throughout the organization. The various managers of the company, their responsibility level, and the lines of authority existing within an entity should be as clearly defined. Objectives of Responsibility Accounting: Control costs, revenue and financial resources Facilitate the evaluation of divisional or departmental performances Determine the contribution to income of each responsibility center Motivate supervisors to attain their objectives Assure management of goal congruence in the organization Responsibility accounting enables management to pinpoint areas of weaknesses in the organization and determine whether the costs and expenses incurred in each sub-unit are proportionate to its contribution to companys income. Responsibility center is an organizational unit headed by a responsible manager. It is a segment of an organization which delimits the revenues and expenses charged to a particular executive. Cost or expense center is a responsibility center, wherein costs incurred are measured without measuring the monetary value of its output. It is a segment of an enterprise having only expense items. (Ex. Accounting department and the maintenance department). Profit center is a responsibility center the performance of which is measured in terms of both revenue realized and costs and expenses incurred. Investment center is one wherein the manager is held responsible not only for revenue, cost and expenses but also for the use of its resources. It is a segment of an enterprise having revenues, expenses, and an appropriate investment base.
The control cycle planning The control cycle is comprehensive in that it includes planning, measurement, and evaluation. The planning process is accomplished through budgeting; the measurement process is the mechanism for feedback; and evaluation is the means for determining what actions to take. Budgeting the coordination of financial and nonfinancial planning in an attempt to satisfy the goals and objectives of the enterprise. Controllable and Non-controllable Costs Responsibility accounting requires the classification of costs into controllable and non-controllable. The controllability of a cost item depends on ones scope of authority and the consequent influence he has over the cost item. An item of cost is controllable if the amount thereof is significantly influenced by the action of the manager of the responsibility center. Significant rather than complete influence is required because rarely does an individual have complete control over all factors that influence any item of cost. Examples of controllable cost are the direct materials and direct labor costs in a department because the supervisor therein exercises significant influence in the control of quantity of materials consumed and number of labor hours used in the production inasmuch as he can adopt measures to minimize material wastages and idle labor time. An item of cost is non-controllable (or uncontrollable) if the manager does not have significant influence over its behavior. Allocated costs are non-controllable because the amount allocated to a responsibility center depends on the formula or base used in their allocation. Some items of cost, although classified as direct cost of a center, may be non- controllable. Examples are depreciation of the fixed assets in the center and the salaries of the centers manager. Direct and Indirect Costs Direct costs are those that are directly traceable to specific focal points. Examples: Direct product cost direct materials and direct labor Direct departmental costs salaries and wages in a particular department Indirect cost are those that are not traceable directly to specific focal points. Their assignment to specific focal points requires allocation. Examples: Indirect product cost indirect materials, indirect labor and depreciation of factory building Indirect departmental costs depreciation of a building being occupied by different departments and cost of power when there is only one power meter in the compound.
Transfer prices When a division or segment does not sell its output to outside parties but only to other segments, it is necessary to establish a transfer price which must be paid by the other division so that the producing division can have measured revenue. -this enables the producing unit to become an earnings center rather than an expense center. Sub-optimization Whenever segmental earnings are used as a performance measure, the effect on total company net earnings of attempting to maximize individual segmental profits must be measured. Emphasizing segmental earnings may lead to competition among units to the detriment of total company earnings. This is called Sub-optimization. Responsibility Report how they relate to each other Reports in a responsibility accounting system are filtered and condensed so that the areas reported are those that need attention. The segment manager is responsible for any unfavorable variance. The managers immediate supervisor will receive a summary of the managers performance. Timeliness of reports Reports should be prepared as soon as possible after the end of the performance measurement period. Reports should be issued regularly. Regularity is important so that the managers will rely on the reports and become familiar with their contents.