2. 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
3. Cost center: A responsibility center in which a
manager is responsible only for costs.
5. Profit center: A responsibility center in which a
manager is responsible for both revenues and
costs.
6. Distinguishing between direct
and indirect fixed costs
Reporting budgeted and actual
controllable revenues and costs
7. Investment center: A responsibility center in
which a manager is responsible for revenues,
costs, and investments.
8. 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)
10. Responsibility accounting is a system that
measures the results of each responsibility
center according to the information
managers need to operate their centers.
11. Kieso, D., Kimmel, P., Weygandt, J. (2003).
Essentials of Accounting: Tools for Business
decision making (2nd ed.) Hoboken, NJ: John
Wiley and Sons, Inc.
Editor's Notes
For example, a department manager in a retail store would report to their store manager, who would report to their district manager, who would then report to the president of the company.
Usually either a service department or a production department. For example, human resources or assembly.
“Only controllable costs are included in the report, and no distinction is made between variable and fixed costs.” (Kieso, Kimmel, Weygandt, 2003, p.356)
For example, the individual reporting department of a retail store.
The responsibility report for a profit center is prepared using the cost-volume-profit income statement.
Mostly used for companies with different product lines or in company expansion.
ROI Formula: Controlling Margin divided by Average Operating Assets equals Return on Investment.