What is Responsibility Accounting?Responsibility accounting involves the separate reporting of revenues and expenses for each responsibility center in a business. Doing so improves the management of operations. For example, the cost of rent can be assigned to the person who negotiates and signs the lease, while the cost of an employee’s salary is the responsibility of that person’s direct manager. This concept also applies to the cost of products, for each component part has a standard cost (as listed in the item master and bill of materials), which it is the responsibility of the purchasing manager to obtain at the correct price. Similarly, scrap costs incurred at a machine are the responsibility of the shift manager. Show
Example of Responsibility AccountingBy using this approach, cost reports can be tailored for each recipient. For example, the manager of a work cell will receive a financial statement that only itemizes the costs incurred by that specific cell, whereas the production manager will receive a different one that itemizes the costs of the entire production department, and the president will receive one that summarizes the results of the entire organization. Usage of Responsibility AccountingAs you move upward through the organizational structure, it is common to find fewer responsibility reports being used. For example, each person in a department may be placed in charge of a separate cost, and so each one receives a report that itemizes their performance in controlling that cost. However, when the more complex profit center approach is used, these costs are typically clumped together into the group of costs that can be directly associated with revenues from a specific product or product line, which therefore results in fewer profit centers than cost centers. Then, at the highest level of responsibility center, that of the investment center, a manager makes investments that may cut across entire product lines, so that the investment center tends to be reported at a minimal level of an entire production facility. Thus, there is a natural consolidation in the number of responsibility reports generated by the accounting department as more complex forms of responsibility reporting are used. Article shared by : Responsibility Reporting for Cost and Profit Centres! Responsibility Reporting for Cost Centres:A specimen of responsibility performance reporting for cost centres is given in Exhibit 11.4 which has been designed to provide relevant cost information to three levels of responsibility centres in a manufacturing enterprise — Foreman, Production Manager, General Manager.  From the Exhibit 11.4 it can be found that each responsibility report contains items and information which are required by the concerned responsibility centre manager and which are within his responsibility area. For example, in the foreman’s report, relevant production cost information is given. In the responsibility report prepared for the production manager, information on different sections of his department is included in aggregated manner and for the general manager, the responsibility report contains information for different departments. It can be further noticed that responsibility reporting goes on aggregating information as the reports are prepared for higher level managers in the organisational hierarchy. That is, the amount of detail decreases as reports reach higher and higher levels of management. Managers cannot make effective use of information that is too detailed and voluminous. Departmental managers do not routinely receive reports detailing all of the costs of the work centres. Managers who want such detailed information can get it and might well seek it if they were concerned about some particular elements of cost. Responsibility Report for Profit Centres:Responsibility accounting reports for profit centres are normally in the form of income statements. The principle of controllability also applies to responsibility reporting for profit centres. The Exhibit 11.5 gives a sample of responsibility report for profit centres organised on the basis of product lines and geographical areas. Managers at the lowest level of profit centre are responsible for product lines. They are subordinate to the managers of the geographical areas, who are, in turn, responsible to the Managing Director of the company. Profit centre reporting can be prepared in a different manner to provide more detail on individual components of the appliance segment in the particular region. Exhibit 11.6 shows an alternative responsibility reporting format giving information on different categories of appliances. For simplicity, budgeted figures are omitted. The critical point in responsibility reporting is conveying the best information: the selection of the elements to include and the format are secondary. For which of the following is a profit Centre manager responsible quizlet?Terms in this set (27)
Profit center managers are responsible for cost and revenue.
Which of the following is considered a type of responsibility center?The correct answer is d.
There are three types of responsibility centers. These are the investment center, cost center, and profit center. Budget center is not a type of responsibility center.
Which type of responsibility center manager is commonly evaluated using return on investment?Investment center managers are usually evaluated using return on investment (ROI) or residual income, as discussed later in this chapter.
What is the manager of a profit center not responsible for quizlet?The manager of a profit center DOES NOT MAKE DECISIONS CONCERNING THE FIXED ASSETS INVESTED IN THE CENTER.
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Responsibility accounting reports for profit centers are normally in the form of income statements.
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