RESPONSIBILITY CENTERS

Accounting 220

Wendy Lile

University of Phoenix

Responsibility Accounting

All levels of management report cost and revenues

“Essential part of any effective system of budgetary control.” (Kieso, Kimmel, Weygandt, 2003, p.351)

3 types of Responsibility Centers: Cost, Profit, and Investment

Cost Center

Cost center: A responsibility center in which a manager is responsible only for costs.

Costs Centers are accountable for:

Responsibility reports that compare flexible budget data with controllable costs.

Profit Center

Profit center: A responsibility center in which a manager is responsible for both revenues and costs.

Profit Centers are accountable for:

Distinguishing between direct and indirect fixed costs

Reporting budgeted and actual controllable revenues and costs

Investment Center

Investment center: A responsibility center in which a manager is responsible for revenues, costs, and investments.

Investment Centers are accountable for:

Reporting their Return on Investment (ROI). “The return on investment is considered to be superior to any other performance measurement because it shows the effectiveness of the manager in utilizing the assets at his or her disposal.” (Kieso, Kimmel, Weygandt, 2003, p.359)

Return on InvestmentReturn on Investment

ROI = Operating incomeAverage operating

assets

Beginning net book value + Ending net

book value2

Responsibility accounting is a system that measures the results of each responsibility

center according to the information managers need to operate their centers.

Responsibility accounting is a system that measures the results of each responsibility

center according to the information managers need to operate their centers.

References

Kieso, D., Kimmel, P., Weygandt, J. (2003). Essentials of Accounting: Tools for Business decision making (2nd ed.) Hoboken, NJ: John Wiley and Sons, Inc.