Meaning
Responsibility accounting is the fundamental
functions of management accounting which
facilitates managerial control. The concept of
responsibility accounting is closely related to
the systems of budgetary control and standard
costing
Definations….
Responsibility accounting is a system of control
where responsibility is assigned for the control
of costs.
Charles T. Hongreen. “Responsibility
accounting is a system of accounting that
recognizes various decision centres throughout
an organization and traces costs to the individual
managers who are primarily responsible
for making decisions about the costs in
Objectives of Responsibility
Accounting:
Responsibility accounting is a method of
dividing the organizational structure into various
responsibility centres to measure their
performance.
1. Inputs and outputs or Costs and Revenues
2. Planned and Actual Information or Use of
Budgeting
3. Identification of Responsibility Centres
Continuation….
4. Relationship Between Organisation Structure
and Responsibility
5. Accounting System
6. Performance Reporting
7. Participative Management
8. Management by Exception
9. Human Aspect of Responsibility Accounting
10. Transfer Pricing Policy
Steps….
Types of responsibility
accounting…
1. Cost Center
Cost centres are segments in which the managers are
responsible for costs incurred but have no revenue
responsibilities”. However, when we can measure only the
expenses or costs incurred and not revenue earned from
responsibility centre, it is known as cost or Expense Centre.
Generally, a company has production and service
departments. The output of production departments can be
measured whereas service departments incur only expenses and
their output is not measured. It may not be either feasible or
necessary to measure output of some service departments. Such
centres are called expense cost centre
Continuation…
2. Profit Center
Cost centres are segments in which the managers are
responsible for costs incurred but have no revenue
responsibilities”. However, when we can measure only the
expenses or costs incurred and not revenue earned from
responsibility centre, it is known as cost or Expense Centre.
Generally, a company has production and service
departments. The output of production departments can be
measured whereas service departments incur only expenses and
their output is not measured. It may not be either feasible or
necessary to measure output of some service departments. Such
centres are called expense cost centre
Continuation….
3. Investment Center
An investment centre is a segment in which manager can
control not only revenue and costs, but also
investment”. The manager of a responsibility centre is
made responsible for properly utilising the assets in his
centre and is expected to earn a fair return on the amount
employed in assets in his centre. The CIMA Terminology
defines investment centre as “a profit centre
whose performance is measured by its return on
capital employed.” The manager of investment
centre exercises control not only on production and
marketing but also on decisions relating to working capital
Importency…
 Assigning of Responsibility
 Improves Performance
Helpful in cost planning
 Delegation and Control
Helpful in Decision-making
Problems in Responsibility Accounting
While implementing the system of responsibility
accounting, the following difficulties are likely
to be faced by the management
1. Classification of costs
2. Inter-departmental Conflicts
3. Delay in Reporting
4. Overloading of Information
5. Complete Reliance will be deceptive
Advantages….
 Better system of control
 Decentralization of decision making
 Comparison of performance
 Increase the interest rate of staff
 Simplifies the structure of reports and
facilitates the prompt reporting