RESPONSIBILITY ACCOUNTING – WITH SPECIAL REFERENCE TO

TATA STEEL LTD. INDIA

The term ‘responsibility accounting’ refers to the accounting process that reports how well managers(of responsibility centres) have fulfilled their responsibility.It is an information system that personalizes control reports by accumulating and reporting cost and revenue information according to defined responsibility areas within a company.

In small organisations, decision making and management of the business are often done by a single individual. However in large organisations, especially organisations engaged in manufacturing/undertaking multiple products and activities, successful management of it by the top management becomes more difficult. In order to overcome this responsibility, the large organisation may be decentralized or divisionalised, that is, different responsibility centres may be created where individual managers have the authority over a given area of operation and freedom to make their own decisions.

Since we had been assigned with steel industry to present the assignment on responsibility accounting, we have taken the case of TATA STEEL. The steel industry is no stranger to market turbulence. Since it was founded in 1907, Tata Steel has risen to each and every challenge, as have its subsidiaries. The latest challenge has come from the economic downturn, which has destroyed vast amounts of wealth across the globe. In response, the Tata Steel Group has reassessed its operating performance in order to strengthen its foundations .The Company swung into action recognising that this economic downturn was deeper than what had been previously experienced and was also more global in scale. The operating plan was realigned to reflect the current realities of the marketplace while working capital generation and utilisation was optimised.

The growth of a company is invariably determined not just by its strategy, but on how it responds to the challenges it encounters. Over the decades, Tata Steel has successfully countered several challenges that have come its way with innovative responses and continuous improvement which have enabled it to remain stable and even convert some of these challenges into opportunities.

Tata Steel encourages its employees to work towards innovation in process and product development to drive efficiencies and create value. This approach has led to a work ethic that focuses on continuous improvement as a way of life.

Tata Steel Limited, Asia’s first integrated private sector Steel Company, is the world’s second most geographically diversified steel producer with major operations in India, Europe and South East Asia. Listed as a Fortune 500 company and with an annual crude steel capacity of around 31 million tonnes , the Company has manufacturing units in 26 countries and a strong presence in 50 European and Asian markets. Tata Steel India is the first integrated steel company in the world, outside of Japan, to be awarded the coveted Deming Application Prize 2008 for excellence in Total Quality Management.

Business Overviewa. Tata Steel, India:1. Steel Division2. Ferro Alloys and Minerals Division (FAMD)3. Tubes Division4. Bearings Division

TYPES OF RESPONSIBILITY CENTRES

A responsibility center is the point in an organization where the control over revenue or expense is located, e.g. division, department or a single machine. A responsibility center may be divided into three categories – Cost, Revenue, Profit, Investment.

Cost CentresA cost or expense centre is a segment of an organisation in which the managers are held responsible for the costs incurred in that segment. Responsibility in a cost centre is restricted to cost. Cost centre managers have control over some or all of the costs in their segment of business, but not over revenues. Cost centres are widely used forms of responsibility centres.In manufacturing organisations, the production and service departments are classified as cost centre. Cost centre managers are responsible for the costs that are controllable by them and their subordinates. However which cost should be charged to cost centres are, is an important question in evaluating cost centres managers.In TATA STEEL the different cost centres are –

Purchase and Production Department Finance Department Marketing and Sales Department

The above particulars show the various types of costs incurred by the various cost centres. Minimizing these costs becomes the responsibility of the managers belonging to the various departments.

Raw Materials consumption showed significant increaseover the previous year mainly due to higher prices of Coaland Coke and also due to higher production resulting fromthe commissioning of ‘H’ Blast Furnace as well as otherfacilities and operational improvements. Increase in theprices of Ferroalloys also contributed to the increase in rawmaterials consumed.

The increase of staff cost over last financial year representsthe revised wages, arrears and impact of change indiscounting rate for valuation of employee benefits as perAccounting Standards (AS15).

Conversion charges increased by 22% over FY 08 mainlydue to an increase in the conversion activities at the LongProducts division as well as an increase in the conversion oftin coated products.

Stores consumption has gone up by 33% as compared to FY08 primarily on account of higher production which was dueto the commissioning of ‘H’ Blast Furnace as well as otherfacilities and operational improvements and an increase inthe price of operational refractories in Steel melting shops.

There was an increase in expenses related to the purchaseof power at the Jamshedpur Works during the year as fourthunit of Tata Power was shutdown for maintenance activitiesand the Company (Tata Steel) had to purchase power athigher rate from alternate sources. Increase in production,increase in sale of power to other consumers also led tohigher purchase of power.

Other expenses have gone up mainly due to consultancycharges, exchange fluctuation on raw material supplies,port charges due to increased exports, increase in brand equity payment, software development charges, packing charges due to increase in prices of steel packing materials and higher payments for contractual jobs.

Revenue CentresA revenue centre is a segment of the organisation which is primarily responsible for generating sales revenue. A revenue centre manager does not possess control over cost, investment in assets ,but usually has control over some of the expenses of the marketing department. The performance of a revenue centre is evaluated by comparing then actual revenue with the budgeted revenue.

Profit Centres

A profit centre is a segment of an organisation for which both revenue and cost are accumulated. The main purpose of profit centre is to earn profit. The performance of profit centre is evaluated in terms of whether the centre has achieved its budgeted profit. A division of a company which produces and markets the products may be called a profit centre.

2. Ferro Alloys and Minerals Division (FAMD):

Investment CentresAs investment centre is responsible for both profits and investments, the investment centre manager has a control over revenues, expenses and the amounts invested in the centres assets.The manager also formulates the credit policy which has a direct influence on debt collection, and the inventory policy which determines the investment in inventory.The activities involved in investment centre are:1. Investment in Research and development 2. Investment in Inventory3. Investment in Fixed Assets4. Investment in Debtors

Increase in Investments in subsidiary companies was due to conversion of advance against equity to Tata Steel Holdings (included in loans and advances as on 31.3.08) and also on account of further contributions to the capital of Tata Steel Holdings apart from contributions to equity of some subsidiary companies in India.

The Gross Block increased during the year primarily on account of the 1.8 million tonne steel expansion programme and the 3 million tonne steel expansion programme (commenced in the last quarter of FY 09) at Jamshedpur.