Responsibilty Centers

ACCA F2 - Management Accounting

Responsibility accounting focuses on developing intrapreneurship and view managers as an independent entrepreneur. It identifies area of manager's authority and responsibility. In responsibility accounting, the power and influence of manager to control and monitor his/her area is measured using accounting tools. Performance measurement should take account of controllable and uncontrollable cost. Further, performance measurement assist reviewing and redefining remuneration of the manager.

Responsibility centers: Responsibility center can be a division, project, functional unit or a branch.

Cost center - to which costs are attributed but not revenues and capital. Managers at cost center optimize their performance by cost control or increasing efficiency. Performance of managers at cost center is measured by cost, efficiency variance and non financial indicators like employees' satisfaction and quality of product.

Profit center - to which costs and revenues are attributed but not capital. Managers at profit centre optimize their performance by revenue maximization and cost control. Performance of managers at profit center is measured by cost, efficiency, sales and contribution variances, turnover ratio, working capital ratio plus non-financial indicators like customers' satisfaction.

Investment center - to which costs, revenues and capital are attributed. Managers at investment center optimize performance by revenue maximization, cost control and investment decision. Performance of managers at investment center is measured by Return on Investment, Residual Income, Economic Value added and non-financial indicators like brand power, customer retention rate etc.

CIMA Article: Management Accounting Performance Evaluation