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Int. Acc. MA LECT 7: CH 14 variance analysis part 1: (Responsibility…
Int. Acc. MA LECT 7: CH 14 variance analysis part 1:
Responsibility centers
Starting point:
DecentralizationàFreedom to make
decisions
A responsibility center is similar to a small business
Basic idea: Large diversified organizations are difficult, if not impossible to manage as a single segment
--> Separating into manageable parts: responsibility centers
Run by a manager to preserve the interests of the company
Types of responsibility centers
Cost centre–manager
accountable for costs only
Controlling costs, but not revenues
E.g. the production manager in the production department in which iPhones are assembled is only responsible for the production costs but not for the final revenue when iPhones are sold
Profit centre
–manager accountable for revenues and costs
E.g. Hilton Hotel: The hotel manager is responsible for pricing, product selection, and promotion
Revenue centre
–manager accountable for revenues only
Not responsible for the manufacturing or acquisition cost of the products or service a firm sells
E.g. an Apple Retail Store owned by Apple Inc.: Store manager is responsible only for costs directly incurred by his/her store, no control over the costs of input acquired, he/she is only evaluated on the basis of actual sales
4. Investment centre
–manager accountable for investments, revenues and costs
E.g. The regional manager of Hilton Worldwide is responsible for investments in new hotel projects and for revenues and costs. Revenue, costs and the investment base would be emphasized in the budget for this manager
Responsibility accounting
Based on information relating to inputs and outputs: Both expressed in monetary terms
Various inputs: Resources that are used, e.g. consumed materials, hours of labor, investmentàCosts
A system for evaluating the performance of managers based on activities under their supervision.
Outputs: Revenues