Download - Responsibility Accounting
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Responsibility AccountingUIAMS, Panjab UniversityChandigarhSession 16th September, 2013
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Relating to the responsibilities of individual managers.To evaluate managers on controllable items.An accounting system that provides information . . . Responsibility Accounting
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DecentralizationIs the systematic effort to delegate to the lowest levels all the authority except that which can be exercised at central points.
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Decision Making is Pushed DownDecentralization
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DecentralizationPromotes better decision making.Allows upper-level management to concentrate on strategic decisions.Improves productivity.Develops lower-level managers.Improves performance evaluation.Advantages
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Benefits of decentralizationReduces workload of the executiveFast decision makingFacilitates product diversificationGives opportunity of learning to each employee
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DisadvantagesConflictCost increases because of duplicacy of workDisadvantage related to profit centres
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Responsibility AccountingResponsibility accounting is used to measure the performance of people and departments to foster goal congruence.
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CostResponsibility ReportsResponsibility Reports Prepared for each individual who has control over revenue or expense items
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Responsibility Reports Prepare budgets for each responsibility center. Prepare timely performance reports comparing actual amounts with budgeted amounts. Measure performance of each responsibility center.
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Responsibility CentersA subunit in an organization whose manager is held accountable for specified financial results.
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Responsibility Centers Cost Center Segment has control over the incurrence of costs.The Paint Departmentin an automobile plant.The ReservationsDepartment of an airline.Revenue Center Segment is responsible for the revenue of a unit
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Responsibility Centers Profit Center Segment has control over both costs and revenues.Company-owned restaurant in a fast-food chain.Investment Center Segment has control over profits and invested capital.
A division of alarge corporation
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Measuring Managerial Performance
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Return on Investment Return on investment is the ratio of income to the investment used to generate the income.
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ROI = Net IncomeInvestmentROI = MarginTurnoverReturn on Investment
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Improving R0IThree ways to improve ROI Increase Sales Reduce Expenses Reduce Investment
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ROI - A Major DrawbackAs division manager,I wouldnt invest inthat project becauseit would lower my pay!Gee . . .I thought we weresupposed to do what was best for the company!
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Performance ReportsShow the budgeted and actual amounts, and the variances between these amounts, of key financial results appropriate for the type of responsibility center.
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Performance Reports
Ch. 10
Raw-Material Inventoryxxx
Direct-Material Price VariancexxxRaw-material InventoryWork-in-Process InventoryWork-in-Process Inventory
Accounts PayablexxxActual quantity atStandard quantityStandard quantity
To record the purchase of raw material and the incurrence of anstandard costat standard priceat standard price
unfavorable price variance.
Work-in-Process Inventoryxxx
Direct-Material Quantity Variancexxx
Raw-Material InventoryxxxDirect-Material Price VarianceDirect-Material Quantity VarianceDirect-Labor Rate Variance
To record the use of direct material in production and the incurrenceUnfavorableFavorableUnfavorableFavorableUnfavorableFavorable
of an unfavorable quantity variancevariancevariancevariancevariancevariancevariance
Work-in-Process Inventoryxxx
Direct-Labor Rate Variancexxx
Direct-Labor Efficiency Variancexxx
Wages PayablexxxAccount PayableRaw-material InventoryWages Payable
To record the usage of direct labor, the incurrance of an unfavorableActual quantity atActual quantity atActual quantity at
direct-labor rate variance and the incurrence of a favorable direct-laboractual coststandard costactual cost
efficiency variance
Cost of Goods Soldxxx
Direct-Labor Efficiency Variancexxx
Direct-Labor Rate VariancexxxCost of Goods SoldDirect-Labor Efficiency Variance
Direct-Material Price VariancexxxUnfavorableFavorableUnfavorableFavorable
Direct-Material Quantity Variancexxxvariancevariancevariancevariance
Disposition of Variances
Sheet2
Normal Costing
Manufacturing OverheadWork-in-Process Inventory
ActualAppliedApplied
overheadoverhead:overhead:
Actual hoursActual hours
xx
PredeterminedPredetermined
overhead rateoverhead rate
Difference lies in the quantity of hours used.Standard Costing
Manufacturing OverheadWork-in-Process Inventory
ActualAppliedApplied
overheadoverhead:overhead:
StandardStandard
allowed hoursallowed hours
xx
PredeterminedPredetermined
overhead rateoverhead rate
Sheet3
BudgetedPlannedPredetermined
OverheadMonthly ActivityOverhead Rate
Variable . . . . . . .$60,000* . . . . . . . . .8,000machine hours. . . . . . . . .$7.50per process hour
Fixed . . . . . . . . .14,000* . . . . . . . . .8,000machine hours. . . . . . . . .1.75per process hour
Total . . . . . . . . .$74,000. . . . . . . . .8,000machine hours. . . . . . . . .$9.25per process hour
* From the flexible budget for planned activity of 8,000 machine hours
Sheet1
Variable costs:
Indirect material:
Wax
Plastic wrap
Paper products
Misc. supplies
Indirect labor:
Maintenance
Janitorial
Utilities:
Electricity
Natural gas
Water
Total variable cost
Fixed costs:
Indirect labor:
Inspection
Production supervisor
Set up
Depreciation:
Equipment
Insurance
Property taxes
Total fixed cost
Total overhead cost
Sheet4
Normal Costing
Manufacturing OverheadWork-in-Process Inventory
ActualAppliedApplied
overheadoverhead:overhead:
Actual hoursActual hours
xx
PredeterminedPredetermined
overhead rateoverhead rate
Standard Costing
Manufacturing OverheadWork-in-Process Inventory
ActualAppliedApplied
overheadoverhead:overhead:
StandardStandard
allowed hoursallowed hours
xx
PredeterminedPredetermined
overhead rateoverhead rate
Disposition of Variances
Manufacturing OverheadCost of Goods Sold
ActualAppliedBalance (1)Balance (2)
overheadoverhead:ActualApplied
Standardoverheadoverhead
allowed hoursgreater thangreater than
xAppliedActual
Predeterminedoverheadoverhead
overhead rate
Balance (1)Balance (2)
Balance (2)Balance (1)
Sheet5
Flexible Budget*Actual Results*Variance
FebruaryYear to DateFebruaryYear to DateFebruaryYear to Date
Company . . . . . . . . . . . . . . . . . . . . . .$30,660$64,567$30,716$64,570$56 F$ 3 F
Maui Division . . . . . . . . . . . . . . . . . .$18,400$38,620$18,470$38,630$70 F$10 F
Oahu Division . . . . . . . . . . . . . . . . . .$12,260$25,947$12,246$25,94014 U7 U
Total profit . . . . . . . . . . . . . . . . . . . .$30,660$64,567$30,716$64,570$56 F$ 3 F
Oahu Division
Waimea Beach Resort . . . . . . . . . . .$6,050$12,700$6,060$12,740$10 F$40 F
Diamond Head Lodge. . . . . . . . . . .$2,100$4,500$2,050$4,43050 U70 U
Waikiki Sands Hotel . . . . . . . . . . . . .$4,110$8,747$4,136$8,77026 F23 F
Total profit . . . . . . . . . . . . . . . . . . . .$12,260$25,947$12,246$25,940$14 U$ 7 U
Waikiki Sands Hotel
Grounds and Maintenance . . . . . . . .($45)($90)($44)($90)$ 1 F
Housekeeping and Custodial . . . . . .$(40)$(90)$(41)$(90)1 U
Recreational Services . . . . . . . . . . . .$40$85$41$881 F$ 3 F
Hospitality . . . . . . . . . . . . . . . . . . . .$2,800$6,000$2,840$6,03040 F30 F
Food and Beverage . . . . . . . . . . . . .$1,355$2,842$1,340$2,83215 F10 U
Total profit . . . . . . . . . . . . . . . . . . . .$4,110$8,747$4,136$8,770$26 F$23 F
Food and Beverage Department
Banquets and Catering . . . . . . . . . . .$600$1,260$605$1,265$ 5 F$ 5 F
Restaurants . . . . . . . . . . . . . . . . . . .$1,785$3,750$1,760$3,74025 U10 U
Kitchen. . . . . . . . . . . . . . . . . . . . . . .$(1,030)$(2,168)$(1,025)$(2,173)5 F5 U
Total profit . . . . . . . . . . . . . . . . . . . .$1,355$2,842$1,340$2,832$15 U$10 U
Kitchen
Kitchen staff wages . . . . . . . . . . . . .($80)($168)($78)($169)$ 2 F$ 1 U
Food . . . . . . . . . . . . . . . . . . . . . . . .$(675)$(1,420)$(678)$(1,421)3 U1 U
Paper products. . . . . . . . . . . . . . . . .$(120)$(250)$(115)$(248)5 F2 F
Variable overhead. . . . . . . . . . . . . . .$(70)$(150)$(71)$(154)1 U4 U
Fixed overhead. . . . . . . . . . . . . . . . .$(85)$(180)$(83)$(181)2 F1 U
Total expense . . . . . . . . . . . . . . . . . .($1,030)($2,168)($1,025)($2,173)$ 5 F$ 5 U
*Numbers without parentheses denote profit; numbers with parentheses denote expenses; numbers in thousands.
F denotes favorable variance; U denotes unfavorable variance.
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Cost AllocationThe process of assigning the costs in the cost pool to the cost objects is called cost allocation or cost distribution.
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Cost Allocation BasesAn allocation base is a measure of activity, physical characteristic, or economic characteristic that is associated with the responsibility centers, which are the cost objects in the allocation process.
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Behavioral Effects of Responsibility Accounting
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Segmented ReportingSegmented reporting refers to the preparation of accounting reports by segment and for the organization as a whole.A segment is any part or activity of an organization about which a manager seeks cost, revenue, or profit data.
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Segmented ReportingDivisionsUnitsAloha Hotels and ResortsOahu DivisionMaui DivisionWaikiki Sands HotelDiamond Head LodgeWaimea Beach Resort
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Segmented Reporting
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THANK U!
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