Meaning 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 question”.

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 management, capital structure and capitalisation

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 deceptiv e

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