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1. BY MANMEET
ROLL NO. 3078
BCP-B

2. ▪Responsibility accounting is a system of control where
responsibility is assigned for the control of costs. The
persons are made responsible for the control of costs.
Proper authority is given to the persons so that they
are able to keep up their performance.
▪In case the performance is not according to the
predetermined standards then the person who are
assigned this duty will be personally responsible for it .
In responsibility accounting the emphasis is on men
rather than on systems.
INTRODUCTION

3. ▪“ Responsibility accounting is that type of
management accounting that collects and reports both
planned actual accounting information in terms of
responsibility centres.”
Acc. To Anthony & Reece
▪“ Responsibility accounting is a system of accounting
that recognisesvarious decision centres throughout an
organisation and traces costs to the individual
managers who are primarily responsible for making
decisions about the costs in question”
Acc. To Charles T. Horngren
DEFINITION

4. Inputs and Outputs
Planned and Actual information
Identification of Responsibility Centres
Relationship between organisation structure and
responsibility accounting system.
Performance reporting
Participative management
Transfer pricing policy
Management by exception

5. Significance of Responsibility accounting
•Improved Accountability : Each manager is responsible for their department’s
performance, ensuring clear ownership of results.

•Better Cost Control : By dividing the organization into responsibility centres,
costs are monitored and controlled more effectively.

•3.Motivates Managers : Linking performance to results encourages managers to
work efficiently and make sound decisions.
•4.Facilitates Performance Evaluation : Performance can be easily measured by
comparing actual results with budgeted figures for each centre.
•5.Encourages Goal Congruence : Ensures that individual objectives align with
overall organizational goals, promoting teamwork and coordination.

6. The Responsibility is the unit in the organisation
that has control over costs, revenues or investment
funds
It is an organisation unit for which a manager is
made responsible
The centre’s manager and supervisor establish
specific and measurable goals for the responsibility
centres
The goals should promote the long term interest of
the organisation
WHAT IS A RESPONSIBILITY
CENTRES

7. There are four basic types of responsibility centres.
These centers indicate the degree of responsibility the
manager has for the performance of the center
▪Cost or Expenses centre
▪Profit centre
▪Revenue centre
▪Investment centre

8. Responsibility Centers-
Prime concern of the REVENUE CENTER – “TOPLINE”
1. Revenue Center -
Inputs
(Money directly
spent on achieving
sales i.e. Mktg. Exp.)
Output
(Sales Generated
in money terms)
RC’s
TASK
• RC has no authority to decide price.
• RC is charged with cost of Marketing and not with cost of
goods produced
• No formal relationship possible between I & O
• Performance Measure for the RC can be Revenue Budgets.
Generate Sales
e.g. Marketing center

9. Revenue Center
A Revenue Center is responsible for selling an agreed
amount of products or services.
It's manager is usually responsible to maximize
revenue given the selling price (or quantity) and given
the budget for personnel and expenses.

10. 2.Expense/Cost Center
Decision Rights –
 Input Mix – Labor, Material, Supplies
 Performance Measures –
 Minimize total cost for a fixed output
 Maximize output for a given “cost budget”
Typically used when –
 RC manager can measure output & quality of output
 knows cost functions, optimal input mix
 can set optimal quantity and appropriate rewards
Inputs
(Money spent on
production)
Output
(Physical units
Produced)
RC’s
TASK

11. Expense/Cost Centers
Responsibility centers whose employees control costs, but
Do not control their revenues or investment level.
Examples: Production department in a manufacturing
unit, a dry cleaning business
Two types of costs:
Engineered: those costs that can be reasonably associated with a
cost center – direct labor, direct materials, telephone/electricity
consumed, office supplies.
Discretionary: where a direct relationship between a cost unit and
expenses cannot be reasonably made; Management allocates them
on a discretionary basis (e.g. depreciation expenses for machines
utilized).

12. 3. Profit Center -
Profit is most comprehensive measure of performance
Function/Activity having highest influence on Bottom
Line suits best for Profit Center.
Can be a Business Division or any of the functional unit
Demands highest freedom/autonomy than any other RCs’
Inputs
(Money spent for
earning profits)
Output
(Money-profit
Earned out of sales)
RC’s
TASK
Relationship can be established

13. Profit Center
Decision Rights –
 Input Mix – Labor, Material, Supplies
 Product Mix
 Selling Price
 Performance Measures –
 Actual Profits
 Actual Profit in comparison with budgeted profits
Typically used when –
 RC manager has knowledge about correct
price/quantity
 RC manager has knowledge to select optimal product
mix

14. 4. Investment Centers
Inputs
(Money spent for
Starting & running
the business)
Output
(Money/net profit
Earned on account
of investment)
RC’s
TASK
• Objective – Make sound investment decision
• It compares Business units profits with assets employed to
earn that profit i.e. efficiency of assets employed.
• It satisfies both the goals of business organizations i.e.
→to earn the profit and
→to achieve optimal relationship in profits earned and
assets employed

15. Investment Center
Decision Rights –
 Input Mix – Labor, Material, Supplies
Product Mix
Selling Price
Capital Investment
 Performance Measures –
 Actual ROI
 Actual Residual Income i.e. EVA
Actual ROI & RI in comparison with budgeted ROI & RI
Typically used when –
 RC manager has knowledge about correct price/quantity
 RC manager has knowledge to select optimal product mix
 RC manager has knowledge about investment opportunities

16. CONCLUSION
•Responsibility Accounting is a vital part of Management Accounting that focuses
on assigning responsibility and authority to individuals or departments within an
organization.
•It helps in evaluating performance objectively, ensuring that managers are
accountable only for the items they can control.

•By dividing the organization into cost, revenue, profit, and investment centres, it
becomes easier to track performance, control costs, and improve efficiency.

•This system promotes effective delegation of authority, motivates managers,
and encourages a culture of responsibility and transparency.
•In today’s competitive and decentralized business environment, Responsibility
Accounting serves as a powerful tool for managerial control, performance
evaluation, and decision-making.
•Overall, it ensures that all parts of the organization work together towards the
common goal of achieving profitability, efficiency, and organizational success.