5-responsibility accounting3

Important terms in responsibility income statement
Traceable fixed costs 可追溯固定成本 would disappear if the
center itself were closed. Common fixed costs 共同固定成本arise because of overall operation of the company and are not due to the existence of a particular center.
to evaluate managers on controllable items.
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3 basic steps in responsibility accounting
for each responsibility center.
Prepare budgets
Prepare responsibility income
Return on assets (ROA) Residual income (RI)
Responsibility Accounting Systems
An accounting system that provides information . . .
relating to the performance of responsibility centers.
Evaluation basis for responsibility centers
Evaluation focus
Cost Center Profit Center Cost control Quantity and quality of services Profitability
Investment Center
Profit Center Reporting
Fixed and variable costs are listed in separate sections.
Income Statement Contribution Margin Format Television Division Sales $ 300,000 Variable COGS $ 120,000 Other variable costs 30,000 Total variable costs $ 150,000 Contribution margin $ 150,000 Traceable fixed costs 90,000 Responsibility margin $ 60,000
No computer division means . . .
P973
Salaries expenses
But we still have a company president.
No computer division manager.
Arguments Against Allocating Common Fixed Costs Common fixed costs would not change even if a business center were eliminated. Common fixed costs are not under the direct control of the center’s managers. Allocation of common fixed costs may imply changes in profitability that are unrelated to the center’s performance.
Profit Center Reporting
Let’s see how the Television Division fits into Webber, Inc.
Profit Center Reporting
Income Statement Company Television Sales $ 500,000 $ 300,000 Variable costs (230,000) (150,000) CM $ 270,000 $ 150,000 Traceable FC (170,000) (90,000) Responsibility margin $ 100,000 $ 60,000 Common costs (25,000) Net income $ 75,000 Computer $ 200,000 (80,000) $ 120,000 (80,000) $ 40,000
Sales revenue Less:Variable costs Contribution margin Less: Fixed costs traceable to the centre Responsibility margin of the centre
Responsibility margin = contribution margin -traceable fixed costs
Profit Center Reporting----an illustration
Webber, Inc. has two divisions.
Webber, Inc.
Computer Division
Television Division
Let’s look more closely at the Television Division’s income statement.
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Topic structure


Responsibility Centers Measuring performance of responsibility centers responsibility income statement responsibility margin fixed cost of varied types performance margin
Responsibility Income Statement
责任损益表
The company Investment centres
Sum up
Sum up
Profit centres
Sum up
Smaller responsibility centres
Basic contents generally included in a responsibility income statement
Profit Center Reporting
Responsibility margin is the Television Income Statement Division’s contribution Contribution Margin Format to overall operations. Television Division Sales $ 300,000 Variable COGS $ 120,000 Other variable costs 30,000 Total variable costs $ 150,000 Contribution margin $ 150,000 Traceable fixed costs 90,000 Responsibility margin $ 60,000
How will you make your decision?
Apparently, the investment of $5,000 is not a
variable cost. Instead, it is a fixed cost traceable to the profit centre in which it is invested. We need to decide which centre can make the extra sales of $20,000 more contributable to income. As a result, the mail-order division with a higher contribution margin ratio of 60% will make better use of the extra investment in advertising.
application
Retail division Mail-order division
Contribution margin
Traceable fixed costs
260,000
52%
240,000
60%
Responsibility margin
90,000
18%
50,000
12.5%
Decision: in which centre to invest 5,000 selling expenses that is expected to result in additional $20,000 sales?
-------responsibility centres
Cost Center 成本中心
A business section that has control over the incurrence of costs, but does not directly generate revenue.
Revenues
Sales Interest Other
Costs
Mfg. costs Commissions Salaries Other
Organization responsibility structure
-------responsibility centres
Investment Center 投资中心 It is a profit center where management also makes capital investment decisions.
Measuring performance of centers Measuring performance of center managers
Responsibility income statement Responsibility margin Traceable fixed costs Performance margin Controllable fixed costs
Organization responsibility structure
-------responsibility centres
Profit Center 利润中心
A part of the business that has contห้องสมุดไป่ตู้ol over both costs and revenues, but no control over investment funds.
Common costs arise because of overall operating activities and are not due to the existence of a particular division.
statements to measure performance of each center.
compare actual amounts with budgeted amounts.
Prepare timely performance reports that
Measuring responsibility centers
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Responsibility Centers
Effective control by upper level of management
Clear decision-making authority
Specified responsibilities
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Organization responsibility structure