Responsibility Accounting Flashcards
What is responsibility accounting?
An internal accounting system which enables actual performance to be compared with budgeting performance.
What are the types of responsibility centres and the managers’ control
Cost centre - costs
Revenue centre - revenue only
Profit centre - Costs and sales prices
Investment centre - costs, sales prices, output volume and investments (NCA and working capital)
What are the main performance measurements for the responsibility centres?
Cost - Variance analysis
Revenue - meeting targets
Profit centre - Level of net income/profits
Investment centre - return on investment / residual income
What is the control process?
Measuring actual results against targets, and taking corrective measures. Controls are in place to help attain targets
What are the three levels of control?
Strategic controls
Management controls
Operational controls
What is a strategic control?
control over the strategy of an organisation, identifying how it can compete in the industry.
What is a management control?
linking operational controls with strategic controls
What are operational controls?
usually low level internal controls, such as quantity of raw materials used
What are action or behavioural controls?
They involve observing workers as they work, appropriate where cause-effect relationships are clear, and the focus should be on prevention rather than detection.
What are social controls?
These are controls through informal means such as solidarity and commitment, norms and values.
What are results/output controls?
These involve comparing actual results with budget, reporting the outcomes of work effort. This includes establishing performance measures, targets, measuring performance and providing rewards or punishment.
What is feedback?
Feedback occurs when the output of a system are used to control the system by adjusting the inputs where required. (Cybernetic/Mechanical)
What is a feedforward control?
Control based on forecast results, ie comparing the expected outputs with the desired and taking action to address this.
What are the four conditions for effective controls?
1 Objectives should be established and known
2 Outputs must be measurable
3 The causes of variations between actual and target must be identifiable
4 Corrective action must be possible
