TOPIC 6: responsibility accounting

CENTRALIZATION, DECENTRALIZATION AND EMPOWERMENT

 Centralized organizations exists when decisions rests only to the top management.
 When the authority to make, decisions is delegated to responsible officers in different organizational levels, there is a
decentralized organization.
 Empowerment is the delegation of power to make decisions up to the organization ’s grassroots to the level of ordinary
workers.

RESPONSIBILITY CENTERS
 In a decentralized organizational structure divisions departments, segments, or units are considered responsibility
centers. Each center is managed by a responsible officer.

CONTROLLABILITY AND RESPONSIBILITY CENTERS

 Controllability refers to the power of the manager to decide or influence the incurrence or non -incurrence of an item.
The concept of controllability is extremely important in measuring a manager’s performance. Within the principle of
decentralization is the truism that a manager should be evaluated only on matters that he has control over.

RESPONSIBILITY CENTERS

INVESTMENTS
REVENUE
CENTERS
COST CENTERS CENTERS PROFIT CENTERS

The manager of this
center is responsible
for the costs and has a
right to make
decisions affecting
their level.
The manager of this
center is responsible
for the revenues and
has a right to make
decisions affecting
their level
The manager of this The manager of this
center is responsible center is responsible
for the costs and for the profit or loss
revenues, as result of and the assets which
that is responsible for were used, and has a
the profit or loss and right to make
has a right to make decisions affecting
decisions affecting their level
their level

Group Vice President -

Investment Centers

Division vice president Support managers

Profit centers Cost centers

Plant managers District Sales managers

Cost centers Revenue centers