416072729-Responsibility-accounting-pptx.pptx

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1. RESPONSIBILITY ACCOUNTING Manira Eliza Abraham Roll No : 9 MCom

2. CONTENTS Meaning Role of responsibility accounting Responsibility centers Case study Conclusion

3. MEANING 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. According to Charles T. Horngren , “ Responsibility accounting is a system of accounting that recognizes various decision centers throughout an organization and traces costs to the individual managers who are primarily responsible for making decisions about the costs in question” .

4. ROLE Decentralization Performance Evaluation Motivation Transfer Pricing Drop Or Continue Decision

5. RESPONSIBILITY CENTERS Responsibility centers  are identifiable segments within a company for which individual managers have accepted authority and accountability.

6. CENTER A cost center is an organizational sub-unit such as department or division, whose manager is held accountable for the costs incurred in that division. Manager of a cost center is responsible for controllable costs incurred in the department, but is not responsible for revenue, profit or investment in that center. A cost center is a responsibility center in which inputs, but not outputs are measured in monetary value.

7. CENTER Profits are the excess of revenue over the total expenses. Therefore, the manager of a profit center is held accountable for the revenues, costs, and profits of the center. A profit center is a responsibility center in which inputs are measured in terms of expenses and outputs are measured in terms of revenues.

8. INVESTMENT CENTER The manager of investment center is held accountable for the division's profit and the invested capital used by the center to generate its profits. Investment centers consider not only costs and revenues but also the assets used in the division. Performance of an investment center are measured in terms of assets turnover and return on the capital employed.

9. About Out To Lunch is a rapidly growing fast-food restaurant chain. Its business model revolves around a uniquely flavored hamburger and a very simple menu consisting of a hamburger, fries, and drinks. It provides simple “round number” pricing, few products, and rapid service. Out To Lunch also has a catering service for sporting events, corporate outings, and similar occasions.

10. Organization Chart

11. The VP of Operations will focus on summary data from store, catering, and procurement management. The presence of fixed costs that are not traceable to any specific operating segment ($1,300,000). Even though this cost is not assigned to a specific segment, it remains a cost for which the VP of Operations is responsible.

12. Some stores are performing much better than others. The senior manager certainly want to focus on store E immediately. Also there is $1,500,000 of fixed costs associated with store operations that is not traceable to any specific location; nevertheless, the senior manager of store operations must control this cost, and it is subtracted in calculating the overall margin. Thus, the total fixed cost for all store operations is $9,500,000 ($8,000,000 + $1,500,000).

13. The report provides detail to show if the objectives are met. The unfavorable variances are highlighted in red. Location A did not meet the budgeted goal for hamburger sales. But, the profit objectives were nevertheless exceeded because the product mix of fries and drinks produced offsetting higher margins. Location A also managed to contain other variable costs.

14. CONCLUSION The CEO would have access to all reports from within the organization, but would mostly focus on reports emanating from each vice president. Management will tend to focus on areas where corrective measures are necessary. This is generally referred to as  management by exception . The preceding reports separated fixed expenses between those that were  traceable  to a specific business unit and  common fixed costs . Great care must be taken in distinguishing between the two. Effective performance evaluations require a clear alignment of responsibility and accountability.

15. PROCESS Organisation is divided into responsibility centers . Each responsibility center is put under the charge of a responsibility manager. The target of each responsibility center are set in consultation with the manager of responsibility center . The actual performance of each responsibility center is recorded and communicated to the executive concerned. If the actual performance of the department is less than the standard set, then the variances are conveyed to the top management. Timely action is taken to take necessary corrective measures.