AMA_U4_ Goal Congruence in Responsibility Accounting.pptx

Goal Congruence in Responsibility Accounting

1. The rationale for responsibility accounting refers to the underlying reasons or justifications for using this accounting system within an organization. It explains why responsibility accounting is important and how it benefits organizations by linking managerial accountability to financial performance. Rationale for Responsibility Accounting

2. Goal congruence means aligning the goals of individual managers or departments with the overall objectives of the organization. In other words, it ensures that when managers pursue their own targets, they also contribute to the company's broader goals. 2. Goal Congruence in Responsibility Accounting

3. Managerial Efforts in Responsibility Accounting Motivation through Responsibility Accounting Controllability Principle Measurement of Financial Performance Different Concepts in Responsibility Accounting

4. Managerial effort refers to the actions managers take to achieve organizational goals, such as cost control, quality improvement, and efficiency enhancement. Responsibility accounting motivates managers to put in more effort because they are accountable for their segment’s results. 1. Managerial Efforts in Responsibility Accounting

5. The sales manager might focus on boosting sales by launching promotional campaigns , knowing they’ll be evaluated based on sales targets. Similarly, a cost center manager may work on reducing overhead costs through efficient resource utilization. Example:

6. Responsibility accounting motivates managers by linking performance with rewards (bonuses, promotions) and ensuring fair evaluation. Managers are more motivated when they are assessed only for outcomes they can influence . 2. Motivation Through Responsibility Accounting

7. If a regional sales manager is evaluated based on the sales performance of their region, they’ll be motivated to enhance sales. However, if they were held responsible for nationwide sales (beyond their control), motivation would decrease due to perceived unfairness. Example:

8. The controllability principle states that managers should only be held accountable for financial outcomes they can control. This principle ensures fairness in performance evaluation , thereby boosting managerial motivation. 3. Controllability Principle

9. A factory manager should be responsible for factory production costs and efficiency but not for changes in raw material prices (which are market-driven and uncontrollable ). Example:

10. Cost Centers: Evaluated based on cost control (e.g., production costs). Revenue Centers: Evaluated based on sales performance (e.g., revenue generated). Profit Centers: Evaluated based on profit margins (e.g., net income). Investment Centers: Evaluated based on return on investment (ROI) and asset utilization. 4. Measurement of Financial Performance

11. A profit center manager of a product line is evaluated on the profitability of that product line. A cost center manager (e.g., maintenance department) is assessed on how effectively they control maintenance costs within budget. Example: