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    Sushmita Sonwani
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    This document discusses responsibility accounting and responsibility centers. It defines responsibility accounting as recognizing responsibility centers throughout an organization and assigning revenues and costs to those with pertinent responsibility. It also defines responsibility centers as segments of an organization where managers are responsible for performance. The main types of responsibility centers discussed are cost centers, revenue centers, profit centers, and investment centers. The document outlines some key assumptions, features, advantages, and techniques for measuring performance of responsibility centers, including variance analysis and calculating return on investment.

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    RESPONSIBILITY ACCOUNTING PPT

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    This document discusses responsibility accounting and responsibility centers. It defines responsibility accounting as recognizing responsibility centers throughout an organization and assigning revenues and costs to those with pertinent responsibility. It also defines responsibility centers as segments of an organization where managers are responsible for performance. The main types of responsibility centers discussed are cost centers, revenue centers, profit centers, and investment centers. The document outlines some key assumptions, features, advantages, and techniques for measuring performance of responsibility centers, including variance analysis and calculating return on investment.

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    © All Rights Reserved
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    17 views13 pages

    Responsibility Accounting

    Uploaded by

    Sushmita Sonwani
    This document discusses responsibility accounting and responsibility centers. It defines responsibility accounting as recognizing responsibility centers throughout an organization and assigning revenues and costs to those with pertinent responsibility. It also defines responsibility centers as segments of an organization where managers are responsible for performance. The main types of responsibility centers discussed are cost centers, revenue centers, profit centers, and investment centers. The document outlines some key assumptions, features, advantages, and techniques for measuring performance of responsibility centers, including variance analysis and calculating return on investment.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    of 13

    Submitted To- Submitted By-

    VASUDHA MA’AM Sushmita Sonwani


    mba(HR/IR)
    Roll no-46
    MEANING OF RESPONSIBILITY
    ACCOUNTING-
    According to Horngren-’’A system of accounting that
    recognizes various responsibility centres throughout
    the organization and reflects the plan and actions of
    each of these centres by assigning particular revenues
    and costs to the one having the pertinent
    responsibility”.
    Assumptions for Responsibility
    Accounting
     It should be a big company with a divisionalised
    organisational structure and where areas of responsibility
    are well defined at different levels of organization.
     Managers must try to attain the goals and objectves.
     Accounting system generates correct and dependable
    information for each responsibility center
     Goals for each area of responsibility should be attainable
    with efficient performance.
    Responsibility Center
    According to CIMA-’’A segment of the organisation
    ,where an individual manager is held responsible for
    its segment’s performance’’.

    TYPES OF RESPONSIBILITY CENTER


    Cost center-A cost center is a business unit that is
    only responsible for the costs that it incurs.
    e.g-Accounting department
    -Human resource department
    -IT department, maintenance dept.
    Revenue center-A revenue center is a distinct
    operating unit of a business that is responsible for
    generating sales.
    Profit center-A profit center is a business unit or
    department within an organisation that generates
    revenues and profits or losses.
    Investment center-A profit centr whose performance
    is measured by its return on capital employed.It is
    most useful in situation where there is a large
    investment by a business unit in fixed assets or
    working capital.
    Features of Responsibility
    Accounting
     Responsibility centers are created.
     A plan is prepared in the form of budgets or standards
    for each responsibility center.
     The performance of the reponsibility center is
    evaluated by comparing actual results with those
    budgeted in regular monthly reports.
     Variances btw actual and budgeted performance are
    analysed so as to fix responsibility.
     Corrective and preventive action is taken,wherever
    possible.
    Advantages of Responsibility
    Accounting
     Responsibility for any adverse performance is clearly
    identified.
     The morale of managers is high because of their active
    participation in decision making.
     Responsibility Accounting provides increased job
    satisfaction and greater motivation to put in their
    efforts.
     It helps in quick reporting of performance -oriented
    results of management of various levels.
    Measurement of Divisional
    Performance
    Divisionalized organisation structure

    COMPANY HEAD OFFICE

    DIVISION I DIVISION II DIVISION III

    PRODUCT
    Purchase
    PRODUCTI Purchase ION
    DEPTT PRODUCTI Purchase
    ON DEPTT DEPTT DEPTT ON DEPTT DEPTT
    Engineering Marketing Engineering Marketing
    Engineering Marketing deptt deptt
    deptt deptt deptt deptt

    Finance & Finance & Finance &


    Adm. Adm. Adm.
    BENEFITS DANGERS

    It promotes quick decisions and Various divisions may compete with
    avoids red tapes and delays. each other in that divisional managers
    may try to increase their own profits at
    Divisionalized structure motivates the expense of other divisions.
    divisional managers to perform better.
    The biggest problem faced by
    It also helps to improve their job divisionalised structure is that there
    satisfaction and self-fulfilment. may be lack of coordination and
    cooperation btw divisions,whis results
    It makes the top manag. Free from in lack of harmony in achieving overall
    detailed involvement in day to day goals of business.
    operations.
    Techniques of measurement of
    divisional performance
    1.Variance Analysis-In this technique ,actual
    performance is compared with standard or budgeted
    performance .variance analysis helps management to
    understand the present costs and then to control
    future costs.
    2.Profit- The absolute amount of profit revealed by a
    profit canter can also be used as a measure to judge
    its performance.
    3.Return on Investment(ROI)-ROI expresses divisional
    profit as a percentage of firm’s investment in the
    division.
    ROI= Divisional Profit 100
    Divisional Investment

    ROI=Profit Sales 100


    Sales Capital invested

    Advantages:
     ROI is easy to understand and interpret.
     ROI is a relative measure and not an absolute measure as it is
    expressed in percentage.
    4.Residual income(RI)-It can be defined as the profit of a
    division less cost of capital charge on the investments used
    by the division.it is also know as economic value
    added(EVA) .
    Residual income=Divisional profit-(Divisional
    investment*Rate of Interest)

    Advantages:
     Residual income method has the advantages of showing a
    division’s ability to earn more than the cost of capital.
     Divisional managers are made to realize that there is an
    opportunity cost of funds used by the division in the form
    of cost of capital
    THANK YOU

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