RESPONSIBILITY ACCOUNTING – WITH SPECIAL REFERENCE TO

TATA STEEL LTD. INDIA

The term ‘responsibility accounting’ refers to the accounting process that reports how well
managers(of responsibility centres) have fulfilled their responsibility.It is an information system
that personalizes control reports by accumulating and reporting cost and revenue information
according to defined responsibility areas within a company.

In small organisations, decision making and management of the business are often done by a
single individual. However in large organisations, especially organisations engaged in
manufacturing/undertaking multiple products and activities, successful management of it by
the top management becomes more difficult. In order to overcome this responsibility, the large
organisation may be decentralized or divisionalised, that is, different responsibility centres may
be created where individual managers have the authority over a given area of operation and
freedom to make their own decisions.

Since we had been assigned with steel industry to present the assignment on responsibility
accounting, we have taken the case of TATA STEEL. The steel industry is no stranger to market
turbulence. Since it was founded in 1907, Tata Steel has risen to each and every challenge, as
have its subsidiaries. The latest challenge has come from the economic downturn, which has
destroyed vast amounts of wealth across the globe. In response, the Tata Steel Group has
reassessed its operating performance in order to strengthen its foundations .The Company
swung into action recognising that this economic downturn was deeper than what had been
previously experienced and was also more global in scale. The operating plan was realigned to
reflect the current realities of the marketplace while working capital generation and utilisation
was optimised.

The growth of a company is invariably determined not just by its strategy, but on how it
responds to the challenges it encounters. Over the decades, Tata Steel has successfully
countered several challenges that have come its way with innovative responses and continuous
improvement which have enabled it to remain stable and even convert some of these
challenges into opportunities.

Tata Steel encourages its employees to work towards innovation in process and product
development to drive efficiencies and create value. This approach has led to a work ethic that
focuses on continuous improvement as a way of life.
Tata Steel Limited, Asia’s first integrated private sector Steel Company, is the world’s second
most geographically diversified steel producer with major operations in India, Europe and South
East Asia. Listed as a Fortune 500 company and with an annual crude steel capacity of around
31 million tonnes , the Company has manufacturing units in 26 countries and a strong presence
in 50 European and Asian markets. Tata Steel India is the first integrated steel company in the
world, outside of Japan, to be awarded the coveted Deming Application Prize 2008 for
excellence in Total Quality Management.

Business Overview
a. Tata Steel, India:
1. Steel Division
2. Ferro Alloys and Minerals Division (FAMD)
3. Tubes Division
4. Bearings Division
 TYPES OF RESPONSIBILITY CENTRES

A responsibility center is the point in an organization where the control over revenue or
expense is located, e.g. division, department or a single machine. A responsibility center may be
divided into three categories – Cost, Revenue, Profit, Investment.

Cost Centres
A cost or expense centre is a segment of an organisation in which the managers are held
responsible for the costs incurred in that segment. Responsibility in a cost centre is restricted to
cost. Cost centre managers have control over some or all of the costs in their segment of
business, but not over revenues. Cost centres are widely used forms of responsibility centres.In
manufacturing organisations, the production and service departments are classified as cost
centre. Cost centre managers are responsible for the costs that are controllable by them and
their subordinates. However which cost should be charged to cost centres are, is an important
question in evaluating cost centres managers.
In TATA STEEL the different cost centres are –
 Purchase and Production Department
 Finance Department
 Marketing and Sales Department
 The above particulars show the various types of costs incurred by the various cost centres.
Minimizing these costs becomes the responsibility of the managers belonging to the various
departments.
 Raw Materials consumption showed significant increase
over the previous year mainly due to higher prices of Coal
and Coke and also due to higher production resulting from
the commissioning of ‘H’ Blast Furnace as well as other
facilities and operational improvements. Increase in the
prices of Ferroalloys also contributed to the increase in raw
materials consumed.

 The increase of staff cost over last financial year represents

the revised wages, arrears and impact of change in
discounting rate for valuation of employee benefits as per
Accounting Standards (AS15).

 Conversion charges increased by 22% over FY 08 mainly

due to an increase in the conversion activities at the Long
Products division as well as an increase in the conversion of
tin coated products.

 Stores consumption has gone up by 33% as compared to FY

08 primarily on account of higher production which was due
to the commissioning of ‘H’ Blast Furnace as well as other
facilities and operational improvements and an increase in
the price of operational refractories in Steel melting shops.

 There was an increase in expenses related to the purchase

of power at the Jamshedpur Works during the year as fourth
unit of Tata Power was shutdown for maintenance activities
and the Company (Tata Steel) had to purchase power at
higher rate from alternate sources. Increase in production,
increase in sale of power to other consumers also led to
higher purchase of power.

 Other expenses have gone up mainly due to consultancy

charges, exchange fluctuation on raw material supplies,
port charges due to increased exports, increase in brand equity payment, software
development charges, packing charges due to increase in prices of steel packing materials and
higher payments for contractual jobs.
Revenue Centres
A revenue centre is a segment of the organisation which is primarily responsible for generating
sales revenue. A revenue centre manager does not possess control over cost, investment in
assets ,but usually has control over some of the expenses of the marketing department. The
performance of a revenue centre is evaluated by comparing then actual revenue with the
budgeted revenue.

Profit Centres
A profit centre is a segment of an
organisation for which both revenue
and cost are accumulated. The main
purpose of profit centre is to earn
profit. The performance of profit
centre is evaluated in terms of whether the centre has achieved its budgeted profit. A division
of a company which produces and markets the products may be called a profit centre.

2. Ferro Alloys and Minerals Division (FAMD):

Investment Centres
As investment centre is responsible for both profits and investments, the investment centre
manager has a control over revenues, expenses and the amounts invested in the centres
assets.The manager also formulates the credit policy which has a direct influence on debt
collection, and the inventory policy which determines the investment in inventory.
The activities involved in investment centre are:
1. Investment in Research and development
2. Investment in Inventory
3. Investment in Fixed Assets
4. Investment in Debtors

Increase in Investments in subsidiary companies was due to conversion of advance against

equity to Tata Steel Holdings (included in loans and advances as on 31.3.08) and also on
account of further contributions to the capital of Tata Steel Holdings apart from contributions
to equity of some subsidiary companies in India.
The Gross Block increased during the year primarily on account of the 1.8 million tonne steel
expansion programme and the 3 million tonne steel expansion programme (commenced in the
last quarter of FY 09) at Jamshedpur.