Responsibilities_of_Accounting

Introduction: Responsibility accounting is an underlying concept of accounting performance measurement systems. The basic idea is that large diversified organizations are difficult, if not impossible to manage as a single segment, thus they must be decentralized or separated into manageable parts. These parts or segments are referred to as responsibility centers that include: 1) cost centers, 2) profit centers and 3) investment centers. Responsibility Centers; the part of an organization under the control of a manager; has control over revenue, cost, and investment funds; ~~~~~Cost Centers: a segment that generates costs, but no revenue; contributes to revenue indirectly of fulfills some other corporate mandate. Example: usually production or service departments such as maintenance and engineering, research and development departments, marketing departments, help desks and customer service. Responsibilities: producing a stated quantity and or quality of output at the lowest feasible cost and are free to acquire short-term assets, to hire temporary or contract personnel and manage inventories. Accountable: managers have the authority to incur costs, ability to control costs. ++ For a cost center, the target will be a unit-cost standard, usually called a standard cost. ~~~~~Profit Centers; a segment that generates both revenue and costs; performance is evaluated on the basis of the return earned on invested capital. Example; units such as human resources and purchasing are strictly cost centers; manufacturing, trucking, fast food Responsible: responsible for both revenues and costs. Managers are evaluated in terms of both the revenues their centers earn and the costs they incur. Allowed to make long term hires, set salary and promotion schedules, organize their units, and acquire long lived assets costing less than some specified amount. Accountable: both revenues and expenses and profits. The manager has to delegate sales revenue generating activities that leads to cash inflow and control the cost causing activities. ++ For a profit center, revenue & endash; cost of goods sold. ~~~~Investment Centers: a segment such as a division of a company where the manager controls the acquisition and utilization of assets as well as revenue and costs Example; corporate headquarters or division in a large decentralized organization; responsible: responsible for both profit and the assets used in generating profit. Managers are evaluated in terms of return on assets which is the ratio of profit to assets employed where the former is expresses as a percentage The main difference between investment centers and all other responsibility centers is that the former approves its own capital budgets.of the latter. Accountable for profits and capital employed, receive regular, periodic Performance reports for their own areas of responsibility; cost control and profit outcomes, the amount of investment capital that is deployed to achieve those outcomes. ++ The budget of an investment center is also a target or goal &endash; usually return on assets (ROA or ROI) or residual income (RI). Different budgeting: These budgets say what a responsibility manager is responsible for doing & endash; spending, meeting required output levels, or managing costs. Incremental analysis, also referred to as marginal or differential cost analysis is when an accountant focuses on the changes in revenues and costs that are a planned result of a specified action in the company. Here are some examples of incremental analysis: * Accepting additional business. * Making or buying parts or products. * Selling products or processing them further. * Eliminating a segment. * Allocating scarce resources (sales mix).