10014_040710_18 - Chapter 12 Responsibility Accounting...

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Chapter 12 – Responsibility Accounting & Decentralization Decentralization: spreading decision making throughout the organization Use segment accounting – financial data for parts of the organization. Use it to measure: 1. Cost containment 2. Profitability 3. Use of operating assets Responsibility: where managers have control over and are accountable for costs, profit, or investments Responsibility Centers: 1. Cost center – managers control only cost - Objective: minimize cost, provide service to other areas of company - Measurement: compare actual costs to budgeted 2. Profit center – managers control cost & revenues - Objective: minimize cost, maximize revenue - Measurement: segmented F/S (format: contribution I/S) 3. Investment center – control cost, maximize revenue, maximize return on investments - Measurement: return on investment & residual income I. Segmented Income Statements A. Be careful about assigning costs 1. According to cost behavior (Variable + Fixed cost). Use contribution I/S 2.
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