Strategic Management

Explain the Meaning of Responsibility Accounting System and Benefit of Responsibility Account.

Responsibility Accounting System is a system in which managers are held responsible for the activities and performance in their area of business and assign responsibility to managers to run particular units of the organization.

The basis of a responsibility accounting system is the designation of each unit of the organization as a particular type of Responsibility Centre. A responsibility centre is a unit in an organization where the manager is held accountable for the unit’s activities and performance. A responsibility center may be divided into three categories:

* Investment Centre - A unit in which the manager is accountable for profit generated and invested capital used to generate profit in that unit.

* Profit Centre - A unit in which the manager is accountable for the profit of that unit.

* Cost Centre - A unit in which the manager is held accountable for cost incurred in that unit.

* Example: Organization chart For Byron Bay Hotels Group

Benefits of Responsibility Accounting:

1) Better System of Control

It enables the management to management to delegate authority to responsibility centers while remaining overall control with itself. For the purpose of exercising best managerial control over the affairs of the organization & achieving the desired goal, responsibility accounting system & budgetary control system can work together.

2) Comparison of Performance

It encourages the comparison between Actual Achievements with Budgeted figures. It compels the setting of realistic goal. As realistic goals are fixed for a responsibility centre, its achievement by the employees becomes easy. Their contribution can be assessed by themselves for the purpose of achieving the goal of the organization as a whole. A sense of belonging to the organization is created among the employees by the systematic responsibility accounting as the reward of the employees...