Responsibility Accounting

Presented by: Shashi Kant

RESPONSIBILITY ACCOUNTING

Presented by: Preeti Kumari Shashi Kant M.B.A, Sem-II

Presented by: Shashi Kant

RESPONSIBILITY ACCOUNTING

RESPONSIBILITY ACCOUNTING IS THAT TYPE OF MANAGEMENT ACCOUNTING THAT COLLECTS AND REPORT BOTH PLANNED ACTUAL ACCOUNTING INFORMATION IN TERMS OF RESPONSIBILITY CENTRE.

According to Eric ,Responsibility Accounting is a method of accounting in which cost are identified with a persons assumed to be capable of controlling them, rather than with products or functions.  

Presented by: Shashi Kant

Responsibility accounting is used to measure both input and output of responsibility centre in monetary terms, where ever feasible . The total of various inputs is called cost where as the total of output is called revenue.

STEPS IN RESPONSIBILITY ACCOUNTING.

STEP-1 .DETERMINATION OF RESPONSIBILITY CENTRE. (i). Cost centers. (ii). Profit centers. (iii). Investment centers.

STEP-2SETTING UP OF TARGET.

STEP-3TRAKING OF PERFORMANCE.

STEP-4CORRECTION OF DEVIATED COURSE OF ACTION

Presented by: Shashi Kant

Responsibility Accounting

• . . . is a reporting system in which a cost is charged to the lowest level of management that has responsibility for it.

Presented by: Shashi Kant

RESPONSIBILITY CENTRES.

ORGANIZATION

MARKETING FINANCE R & DCPRODUCTI

ONHRD

Marketing manager

Finance manager

R & D Manager

Production manager

HRD Manager

Marketing budget

Finance budget

R & D Budget

HRD Budget

Production Budget

Presented by: Shashi Kant

ORGANIZATION

DEPARTMENT

PLANT

Worker

Group of workers

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A responsibility center may be divided into three categories:

1-Cost or Expense2-Profit 3-Investment4-Contribution5-Revenue

Presented by: Shashi Kant

Cost

Cost Centre

A business segment in which managers are responsible for cost incurred but have no

revenue responsibility.

A. Production Cost Centre.B. Service Cost Centre.

C. Ancillary/Partly Producing Cost

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Profit Centers

Profit CenterA segment whose manager has control over both costs

and revenues, but no control over

investment funds.

RevenuesSalesInterestOther

CostsMfg. costsCommissionsSalariesOther

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Contribution centreIt is the centre where performance is mainly measured by contribution its earns. Contribution is the difference between sales and variable cost.

Main responsibility of manager of such responsibility centre is to increase the contribution , Higher the contribution better will be the performance of the manager of that cell.

Presented by: Shashi Kant

Investment Center It is the centre in which a manager can control not

only revenue and costs but also investments.

The manager of such centre is made responsible for properly utilizing assets used in his centre.

Divisional investment = Net fixed asset + Current asset of division – Current liabilities of division.

Presented by: Shashi Kant

Rate of Return on Investment (ROI)Rate of Return on Investment (ROI)

RevenuesReturn on investment =

net profit of the division Investment of the division

× 100

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Investment Turnover

Profit Margin

Profit

Rate of Return on Investment (ROI)Rate of Return on Investment (ROI)

Presented by: Shashi Kant

The profit margin indicates the rate of profit

on each sales dollar.The

investment turnover indicates the rate of sales on

each dollar of invested

assets.

Profit Margin

Investment Turnover

Rate of Return on Investment (ROI)Rate of Return on Investment (ROI)

Presented by: Shashi Kant

Measuring Management Performance

CoststandardsCoststandards

Contributionincomestatement

Contributionincomestatement

Rate of returnon investedfunds or residual income

Rate of returnon investedfunds or residual income

Evaluation ToolCost

CenterCost

Center

InvestmentCenter

InvestmentCenter

ProfitCenterProfit

Center

Presented by: Shashi Kant

PRINCIPLES OF RESPONSIBILITY ACCOUNTING

1- Determination of responsibility centre.2- Comparison of actual performance with target.3- Variance from budget plan are analyzed so as to fix the responsibility of the centre.4- More and more improvement.5- Report to responsible individual for action.

Presented by: Shashi Kant

6- A suitable transfer pricing policy should be followed to get the desirable result of responsibility accounting.7- The success of responsibility accounting is based on the performance report known as responsibility report .8- Accounting system is designed in such a way which may provide an accumulate accounting information by areas of responsibility. Now a days the term MIS is very popular the purpose of MIS is reporting and to provide the necessary information to the managers an supervisors at various level .

Presented by: Shashi Kant

ADVANTAGES OF RESPONSIBILITY ACCOUNTING

1- ASSIGNING OF RESPONSIBILITY.2- IMPROVE PERFORMANCE.3- HELPFUL IN COST PLANNING.4- DELEGATION AND CONTROL.5- HELPFUL IN DECISION MAKING.6- MANAGEABLE SIZE.7- OPPORTUNITY TO GAIN VALUABLE MANAGERIAL SKILL.

Presented by: Shashi Kant

Presented by: Shashi Kant