Presented by: Mahesh Pandey

MBA

Responsibility Accounting is a management system that aims to develop performance measures by which segment managers are evaluated.

The essence of responsibility accounting is to communicate the right information to the right person at the right time.

Relating to theresponsibilities of

individual managers.

To evaluatemanagers on

controllable items.

An accounting system thatprovides information . . .

A subunit in an organization that is headed by a responsible manager.

A subunit in an organization that is headed by a responsible manager.

Under responsibility accounting responsibility centers are broadly categorized as:

Cost centers – segments whose managers are held responsible only for costs but not for revenue or investments.

Revenue centers- segment is responsible for the revenue of particular unit or center.

Profit centers – segments whose managers are held responsible for both costs and revenues but not for investments.

Investment centers – segments whose managers are held responsible for the capital invested as well as the profits made in the segment.

Cost Cost CenterCenter

SSegment egment has control has control

over the over the incurrence of incurrence of

costs.costs.

Cost Cost CenterCenter

SSegment egment has control has control

over the over the incurrence of incurrence of

costs.costs.

The Paint DepartmentThe Paint Departmentin an automobile plant.in an automobile plant.

Revenue Revenue CenterCenter

SegmentSegmentis responsibleis responsiblefor the revenue for the revenue

of a unit.of a unit.

Revenue Revenue CenterCenter

SegmentSegmentis responsibleis responsiblefor the revenue for the revenue

of a unit.of a unit.

The ReservationsThe ReservationsDepartment of an airline.Department of an airline.

Profit Profit CenterCenter

Segment hasSegment has control overcontrol over bothboth costs costs

and revenues.and revenues.

Profit Profit CenterCenter

Segment hasSegment has control overcontrol over bothboth costs costs

and revenues.and revenues.

Company-owned Company-owned restaurant in a fast-restaurant in a fast-food chain.food chain.

Investment Investment CenterCenter

Segment has Segment has control over control over profits and profits and invested capital.invested capital.

Investment Investment CenterCenter

Segment has Segment has control over control over profits and profits and invested capital.invested capital.

A division of aA division of alarge large corporation.corporation.

CostCoststandardsstandardsCostCoststandardsstandards

Contributionincomestatement

Contributionincomestatement

Rate of returnRate of returnon investedon investedfundsfunds

Rate of returnRate of returnon investedon investedfundsfunds

Evaluation ToolEvaluation ToolCostCost

CenterCenterCostCost

CenterCenter

InvestmentInvestmentCenterCenter

InvestmentInvestmentCenterCenter

ProfitCenterProfit

Center

Cost

Responsibility Reports

Responsibility Reports

Prepared for each individual who

has control over revenue or

expense items