Explain the Responsibility Accounting Technique of control.
Answer – Responsibility accounting divides an organisation into centres whose managers are accountable for specified results and compares actual performance with budgets.
Centre | Manager's responsibility |
Cost centre | Control costs within the assigned activity. |
Revenue centre | Achieve revenue targets. |
Profit centre | Manage both revenue and cost to earn profit. |
Investment centre | Manage profit in relation to the assets or capital employed. |
Evaluation should distinguish items a manager can control from those outside that manager's authority.