RESPONSIBILITY ACCOUNTING

Name: Aarti Lodhe

Roll no:01
AMSIMR
MBA-Sem 2
 RESPONSIBILITY ACCOUNTING

DEFINITION & MEANING

“Responsibility accounting as a method of accounting in which cost are
identified with persons assigned to their control rather than with
products or functions”

-Eric L. Kohle
 FURTHER DEFINITION
The basic definition of a responsibility center Lowest
organizational level at which funds control functions are
carried out. Generally the same as divisions in an operating
component
 ADVANTAGES

Assigning of responsibility

Improve performance

Helpful in cost planning

Delegation and control

Helpful in decision making

 DISADVANTAGES

Difficult process

Require more effort

Provides irrelevant information

Time consuming
 RESPONSIBILITY CENTERS

Responsibility Centers Large complex

businesses are divided into responsibility
centers enabling managers to have a smaller
effective span of control
TYPES OF RESPONSIBILITY CENTRES

1. Investment centres

2. Cost or expense centres

3. Profit centres

4. Revenue centres
 COST CENTRE
Cost centres is a location, function or items of equipment in respect of which
costs may be ascertained and related to cost units of control purpose.

 Is defined as a production or service, function, activity or item of equipment

whose costs may be attributed to cost units.

 From functional point of view, a cost centres may be of any of the following:

1. Production cost Centre

2. Service cost Centre

3. Manufacturing Centre
 PROFIT CENTRE

It is Necessary to have units of the organization to which both

revenues and costs can be separately attributed.

 Managers of profit centre should also responsible for revenue as well

as costs, which implies that there should be sufficient decentralization
of authority within the company to permit profit centre, managers to
make decisions about selling prices and output levels at those prices.
 INVESTMENT CENTRE
The profit earned must be related to the amount of capital invested.
Such division are sometimes called “investment centre”.

 For this reason performance measured by Return on capital

employed (ROCE),often referred to as Return on investment(ROI) and
for other subsidiary ratios, or by Residual income(RI)
 REVENUE CENTER
A Revenue Center is responsible for selling an agreed amount of
products or services.
Its manager is usually responsible to maximize revenue given the selling
price (or quantity) and given the budget for personnel and expenses
 REVENUE CENTRE
 Revenue centre is a centre devoted to raising revenue with no
responsibility for production, e.g., a sales centre.

 It is a responsibility centre in which a manager is only held

responsible for the level of revenue or outputs of a centre, as
measured in monetary terms, but not responsible for the cost of the
goods or service that the centre sells.
 RESPONSIBILITY CENTRE (RC)
RC is a unit or function of an organization headed by a manager
having direct responsibility for its performance.

RC is a personalized group of cost centre under the control of a

responsible individual.

 Under RC approach, the accounting system generates information on

the basis of managerial responsibility, allowing that information to be
used directly in motivating and controlling each manager’s actions
incharge of RC.
THANK YOU