Responsibility Accounting Essay

It is impossible for make managers to puff all the necessary decisions about everything except in very lessened fundamental laws. Somehow at rough point he has to delegate some decisions to those who are at the lower levels and are more knowledgeable to the habitual detail of the companys operation.By empowering lower level managers to pull decisions, decision-making ascendancy is spread throughout the organization rather than being intent to a few top executives. Attached with this decentralized approach, are be and decisions at individually sub-level that managers assimilate to be responsible for.Decentralized organizations engage up business accounting systems to link the managers decision-making authority with function for the outcomes of those decisions and to make sure that they are in congruence with the organizations goals.The term responsibility reduce is used in any breach of the organization whose managers has give and is accountable for monetary value, profit or investment.An Organizational panorama of Responsibility CentersThe manager of an investment center has control over cost, revenue, and investments in operating assets. Investment centers are usually evaluated using return on investment (ROI) or residual income measures.The manager of a profit center has control over two(prenominal) costs and revenue, further not over the use of investment funds. They are often evaluated by comparing effective profit to targeted or budgeted profit.The manager of a cost center has control over costs, but not over revenue or the use of investment funds. Managers of cost centers are anticipate to minimize costs firearm providing the level of produces and services demanded by other parts and stakeholders of the organization.For this decentralized construction to be effective, organizations need to employ responsibility accounting. Responsibility accounting refers to the several(a) concepts and tools used by managerial accountants to measure the surgical operation of people and departments to shelter goal congruence.Below are some of the concepts and tools that managerial accountants used for responsibility accounting1.Segment Reporting Income statements are generated from each part or drill of an organization (e.g. sales territories, individual stores, service centers, manufacturing plants, commercialiseing departments, individual customers, and product lines). In utilizing this concept of delineateing, managers have to identify traceable and common stiff costs and make use of natural action-base costing if necessary. These segmented income statements are effectual in analyzing the profitability of segments and in measuring the performance of segment managers.2.Performance report of each responsibility centers this shows the budgeted and actual amounts, and the variances between these amounts, of key financial results enamor for the type of responsibility center involved. The data in a performance r eport help managers use charge by exception every to control cost operations effectively, find ways to generate more profit or consider opportunities for investments.3.Activity-based responsibility accounting Under this approach, counsel is directed not solo to the cost incurred in an activity but as strong as to the activity itself. Questions like the following will be asked, Is the activity necessary? Does it match value to the organizations product or service? Can the activity be improved? By want answers to these questions, managers can eliminate non-value added activities and increase the cost effectiveness of the activities that do add value.4.Customer Profitability Analysis uses the concept of activity-based costing to determine how serving particular customers causes activities to be performed and costs to be incurred. This focus on major market segments, geographical regions, distribution channels or customers. This also helps managers gain discernment into the fa ctors that are driving the companys performance.Goal congruence results when the managers of subunits throughout an organization strive to achieve the goals set by top management. given up the above concept and with proper implementation an organization is surely move above its competitors.It is therefore recommended that while top management gave the subunit managers decision-making authority and responsibility accounting systems in place, it is still of utmost importance that both side will conduct regular dialogue and consultations for coordination and to keep each other expectations on the same level and to make sure that top management understands the concerns of the lower level managers and vice versa. Top management also must emphasize that the responsibility accounting systems main functions are data and not blame, make sure costs are distinguished decently between controllable and uncontrollable as this increases the effectiveness of cost management systems, and its usa ge is to motivate desired behavior that would be beneficial for both the company and the employees.So how does responsibility accounting fosters goal congruence?As companies adopt this concept, top level management can concentrate on bigger issues such as overall strategy of the company. This allows as well lower-level managers to respond more quickly to customers and to changes in the operating environment since layers of decisions makings and approvals have been eliminated, and lower managers are now given the chance to be handy for higher positions.Consequently, as lower level managers make decisions they are expected that their motivation for work and job satisfaction is increased because the decision-making authority empowers them. simply the concept of responsibility accounting is not only limited to an organizations structure. For any type of cost whether from an organizations positioning or from your personal life, an important key to managing or controlling the cost is to make it someones responsibility. And whether we like it or not, decisions has to be made, the only difference is that if we are choosing to make the right decisions or the wrong ones.