Professional Documents
Culture Documents
Responsibility Accounting-Assignment
Responsibility Accounting-Assignment
Responsibility Accounting-Assignment
“a method of accounting in which costs are identified with persons assigned to their control rather than
with products or functions”.
OBJECTIVE:
The primary objective of this accounting is to support all the Planning, costing, and responsibility centres
of a company.
1. Inputs and Outputs – The implementation of responsibility accounting based upon information
relating to inputs and outputs.
2. Identification of Responsibility Center – The whole concept of responsibility accounting depends
upon identification of responsibility center.
3. Target and Actual Information – Responsibility accounting requires target or budget data and
Actual data for performance evaluation of the responsible manager of each responsibility
center.
4. An organization structure with clear authority and responsibility is required for a successful
responsibility accounting system.
5. Assigning Cost and Revenue to an Individual –responsibility relationship, cost, and revenue
which are controllable should be assigned to individuals for evaluating their performance.
1. Cost Center: As the name suggests the 3. Profit Center: The performance of this
persons involved in this center are center is measured in terms of revenue
responsible for controlling cost for the and cost and the team working in this
company and they are not responsible center has to make sure to report
for any other functions in the company. accurate numbers. Generally, a factory
However, there are two types of costs can be considered as a profit center
namely controlled and uncontrolled, a where the raw materials as input are a
person should be held responsible for part of the cost center and sales of the
the controlled costs, and the finished goods are revenue center.
performance of each center is 4. Investment Center: We can say that
evaluated by comparing the actual vs this is a very important center to be on,
estimated costs. as this team has to make sure that the
2. Revenue Center: Revenue takes care of assets of the company are properly
the revenue for the company and no utilized in the best manner so that the
other related responsibilities, mostly company effectively capitalize on the
the sales related teams are accountable deployed capital and earn handsome
for this center. revenues from the same.
ABC Pharma Inc is engaged in the manufacturing of medicine company has decided to produce 10000
medicine in the year 2018 for which the company has defined the budget of $ 90000 at the beginning of
the year. Still, at the end of the year, it has noticed the actual cost incurred
for the production is $95000. There is an excess expenditure of $5000 over-budgeted expenditure,
which the responsibility manager has to explain why this has increased.
1. It urges the management to acknowledge the company structure and checks who is accountable
for what and fix the problems.
2. It enhances attention and awareness of the managers as they have to explain the variations for
which they are responsible.
3. It helps to compare the achievements between the pre-planned goals and actual results.
4. It creates a sense of efficiency within individual employees as their work and achievements will
be reviewed.
5. It guides the management to plan and structure the future expenditure and revenue of a
company.
6. Being a cost control tool, it creates ‘cost consciousness’ among workers.
7. Individual and company goals are established and communicated in the best way.
8. It improves and controls the company’s operating activities for an effective and efficient
outcome.
9. Simplifies the report structure and guides to prompt reporting.
CONCLUSION:
This accounting method which works as a tool to improve the efficiency and transparency of the
company is very effective to adapt, while responsibility accounting helps to segregate the operations of
the company it also enables to hire of the best talent suitable for each center.