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Responsibility Center - Responsibility center a well design...

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Responsibility center a well design responsibility accounting system establishes responsibility centers for purpose to encourage managers, it’s a part of controllability, it’s a management by objective Cost Center is responsible of costs only, ex maintenance department or an internal accounting department. A cost center is the least complex type of center due to its being responsible only for costs, and the managers of a cost center are best evaluated by using variance analysis for these costs. The efficiency of operations is the key to the evaluation. Revenue Center A sales department is a revenue center; the costs incurred by a revenue center are generally immaterial and may not even be controllable by the center, effectiveness is the key for the evaluation. Profit Center a n example would be a department within a store, which would have both revenues and cost of goods sold. Because a profit center is responsible for both costs and revenues, a manager of a profit center will be evaluated on both costs and revenues. In a profit center, both efficiency and effectiveness are assessed, but priority is given to effectiveness. In fact, the profit can be treated as the goal to be achieved. Investment Center - An investment center is responsible for profit (revenues and costs and some amount of invested capital; Because it is responsible for a return-on-investment, this type of department is the most like a regular and complete business by itself. However, it is still part of an even larger organization. An example of this type of center is a branch office. Effectiveness in achieving/exceeding predetermined criteria is the key evaluation. In an investment center, the most important criterion for evaluation is the ROI Centralized organization is more effective coordinated. Decentralized organization decision making is at low a level as possible Controllability is the extent to which a manager can influence activities and related revenues, costs or other items. Goal congruence takes place when a manager's individual goals align with those of the organization. Suboptimization occurs when one segment of a firm takes action that is in its own best interest but is detrimental to the firm. Management by objectives ( MBO) is a related concept. It is a behavioral, communications-oriented, responsibility approach to employee self-direction Payback method is a means of evaluating alternative investment proposals Contribution accounting is a system in which costs are divided according to whether they are fixed or variable, as variable cost are controllable thus it’s better used than gross profit Segment is a product line, geographic are or other subunit Profit margin= income/sales Relevant revenues or costs are all expected future amounts that will vary among the possible decision choices Common costs are the costs of products, activities, facilities, services, or operation shared by two or more cost objects. Central cost must be allocated to the production department Cost allocation can be done based on various
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