SCRIPT FOR RESPONSIBILITY ACCOUNTING

SLIDE 1: Good day everyone! I am Melanie Mangapis and today I’m going to report about the
Responsibility Accounting: The management control environment. This chapter introduces
responsibility accounting, a pivotal aspect of management accounting focused on controlling
and assessing performance within organizations. It outlines the fundamental features of
management control, including organizational structure, procedures, culture, and external
influences. Central to this control mechanism are responsibility centers, which are
organizational units held accountable for specific functions. The chapter delineates four types
of responsibility centers—revenue, expense, profit, and investment centers—each tailored to
different managerial needs. Moreover, it discusses transfer pricing, particularly pertinent for
profit and investment centers, as a method for equitable allocation of costs and revenues
within the organization.
Slide 2:
The organization sets goals and develops strategies through strategic planning to
achieve those goals. Strategic planning is dynamic, adapting to new opportunities and
threats as they arise. Management control ensures the implementation of these
strategies efficiently and effectively by influencing organizational members. It
encompasses both ensuring planned activities proceed as intended and planning for
optimal implementation. Management control aims for desired rather than strictly
planned results, acknowledging the flexibility needed in practice. Unlike mechanical
processes, organizational control operates along a continuum, from excellent to poor
control. This process occurs within an environment with distinct characteristics, as
detailed in subsequent chapters.
Slide 3:
An organization is composed of individuals working together toward common goals or
objectives. Leadership is crucial for effective collaboration toward these goals, with
managers performing various tasks such as goal setting, communication, task allocation,
coordination, and motivation. Observation, feedback, and corrective action are integral
parts of managerial responsibilities. Organizations typically adopt hierarchical structures
with multiple layers of management to facilitate efficient supervision and decision-
making. Formal relationships among managers are often depicted in organization
charts, with line units directly contributing to goal achievement, and staff units providing
support services. Responsibility centers, such as departments or divisions, are headed by
managers who are accountable for their unit's activities, including internal operations
and external interactions.
Slide 4:
An organization establishes rules, guidelines, and procedures that shape member behavior,
ranging from formal written policies to informal practices. These controls are influenced by
factors like organizational size, complexity, and management preferences, and they endure
until modified. Changes typically occur gradually. Controls may be physical, like security
measures, or documented in manuals and memos. They can also be conveyed orally or through
nonverbal cues, such as office attire norms. Crucially, a significant aspect of these controls
involves the rewards for good performance and penalties for substandard performance or
prohibited activities, whether explicitly stated or implicitly understood.
Slide 5:
Organizational culture, shaped by tradition, external influences, and top management attitudes,
dictates behavioral norms within an organization. Though often unwritten, cultural factors
significantly impact control effectiveness, explaining disparities in control despite similar formal
systems. Top management, notably the president and chairman of the board, play a pivotal role
in shaping this culture and, consequently, the control environment. Their attitudes toward
control—whether preferring tight or loose controls—strongly influence organizational practices
and outcomes, with both approaches potentially effective depending on the context.
Slide 6:
The external environment of an organization encompasses entities like customers, suppliers,
competitors, regulatory agencies, and the community, with whom the organization interacts
continuously. The nature of this environment significantly influences the organization's
management control system, with uncertainty being a key factor. In environments with stable
revenues and technology, control systems differ from those in dynamic, competitive markets
requiring rapid adaptation. In uncertain environments, informal managerial judgment plays a
more prominent role than formal control systems, and managers require timely and accurate
external information to navigate effectively.
Slide 7:
Illustration 23-2 illustrates the nature of responsibility centers, using an electricity generating
plant as an analogy. Similar to a responsibility center, the plant utilizes inputs to perform work,
resulting in outputs. Inputs include materials, labor, and assets, while outputs are tangible
goods or intangible services. Information about these inputs, assets, and outputs is crucial for
management control, often measured in monetary terms like cost. Accounting measures
outputs as revenue when sold to external customers, while transfers to other internal centers
may be measured monetarily or non-monetarily. Effective management control requires both
cost and non-accounting information to evaluate performance accurately.
Slide 8:
The difference between Responsibility Accounting and Cost Accounting is definition wise,
Responsibility Accounting focuses on providing both planned and actual accounting information
about inputs and outputs of responsibility centers. While cost accounting Concentrates on
determining the full costs associated with goods and services (products or programs). The focus
of responsibility accounting is it Emphasizes responsibility centers within the organization,
tracking costs incurred and performance within these units. In cost accounting however is it
Centers on products or programs, determining the total costs associated with their production
or operation. The purpose of responsibility accounting Primarily used for control purposes,
providing managers with information to evaluate performance and make decisions. In cost
accounting it is Used for pricing decisions and evaluating program profitability, offering insights
into the costs associated with specific products or programs.
Slide 9:
In information dimensions, responsibility accounting Considers three dimensions: responsibility
center, program, and cost element, enabling analysis of where costs were incurred, for what
purpose, and which resources were used. Cost Accounting however, Focuses on total costs
associated with products or programs, without specifying individual departmental or
managerial responsibilities. In cost allocation Responsibility Accounting Allocates costs to
specific responsibility centers, enabling managers to understand the costs they are individually
responsible for. Cost accounting however, Allocates costs to products or programs, providing
insights into overall production costs without specifying departmental responsibilities. In
reporting, responsibility accounting Typically represented in a cost matrix format, showing both
responsibility costs and full program costs, facilitating control and decision-making. In cost
accounting it is Often presented as total product costs, aggregating all costs associated with
production or operation, without detailing departmental responsibilities.
Slide 10: Contrast between full costs and responsibility costs
Slide 11: Types of Responsibility Centers:
1. Revenue Centers - A responsibility center is deemed a revenue center when its manager
is accountable for the center's outputs measured in monetary terms (revenues), but not
for the costs associated with the goods or services sold. Typical examples include
regional sales offices and selling departments within retailing companies. While revenue
centers are often responsible for controlling selling expenses, they may not oversee the
major cost item—the cost of goods or services sold. Consequently, subtracting the
manager's expenses from the center's revenues does not yield a profit measure,
distinguishing revenue centers from profit centers.
2. Expense Centers - Expense centers measure costs incurred by a responsibility center
without considering revenues generated. While every responsibility center has outputs,
measuring these in revenue terms may be impractical. Therefore, most individual
production departments and staff units are categorized as expense centers. Unlike cost
centers, which collect costs for charging to cost objects, not all cost centers are expense
centers. Standard cost centers, where standard costs are set for many cost elements,
are a specialized type of expense center. They measure actual performance through
variances between actual and standard costs and are commonly found in repetitive task
environments like assembly lines and fast-food restaurants.
3. Profit Centers - Revenue measures outputs, while expense (or cost) measures inputs or
resources consumed. Profit is the difference between revenue and expense. A
responsibility center becomes a profit center when its performance is evaluated based
on the difference between the revenue it earns and the expense it incurs. In
responsibility accounting, revenue recognizes the outputs of a center within a given
period, regardless of when the company realizes the revenue. A profit center can be any
unit whose outputs are measured in revenues, and management decides which units
are designated as profit centers. While external sales generate revenues automatically
for the company, internal units only recognize revenues if management deems it
necessary. With creativity, almost any expense center could be turned into a profit
center, but the decision depends on the perceived benefits.
4. Investment Centers - An investment center is a responsibility center where the manager
is accountable for both asset utilization and profit, representing the ultimate extension
of responsibility. Managers in investment centers are expected to earn a satisfactory
return on the assets employed. Companies often use metrics like return on investment
(ROI), accounting rate of return, return on assets, or return on net assets to measure an
 investment center's performance. Alternatively, some companies calculate residual
income, which subtracts a capital charge from profit, reflecting the return on assets or
net assets.

Slide 12: basaha lang mang

Slide 13: Thank you for listening everyone and that concludes my report.