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
Responsibility accounting is a method of
Accounting:

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