RESPONSIBILITY ACCOUNTING

Kumaraswamy Boda

Responsibility centre
It is defined as an area of responsibility which is controlled by an individual. Responsibility areas may be dept., product lines, territories etc. A plant manager is in charge of a plant & is usually responsible for producing budgeted quantities of specific products within budgeted cost limits. A sales manager is responsible for getting orders from customers.
Kumaraswamy Boda

TYPES OF RESPONSIBILITY CENTRES

Cost centre Revenue centre Profit centre Investment centre

Kumaraswamy Boda

COST CENTRE
A cost or expenses centre us a segment of organisation in which managers are held responsible for the cost incurred in that segment but not for revenues. Responsibility in a cost centre is restricted to cost. In manufacturing organisation production and service depts. are classified as cost centre.
Kumaraswamy Boda

REVENUE CENTRE
It is a segment of the organisation which is primarily responsible for generating ales revenue. A revenue centre manager does not possess control over cost, investment in assets. The performance of a revenue centre is evaluated by comparing the actual revenue with budgeted revenue.
Kumaraswamy Boda

PROFIT CENTRE
A profit centre is a segment where manager is responsible for both revenues and costs. The main purpose of profit centre is to earn profit. Profit centre managers aim at both the production and marketing of a product. The performance is evaluated in terms of whether centre has achieved profit or not. Manager has the responsibility to make decisions that affect both costs and revenues.
Kumaraswamy Boda

INVESTMENT CENTRE
This centre is responsible for both profits and investments. Manager has control over revenues, expenses & amounts invested in centre assets. He formulates the credit policy which has a direct influence on debt collection & the inventory policy which determines the investment in inventory.
Kumaraswamy Boda

RESPONSIBILITY ACCOUNTING
o It refers to the accounting process that reports how well managers have fulfilled their responsibility. o It is an information system that personalises control reports by accumulating and reporting cost and revenue information according to defined responsibility centres within a company.

Kumaraswamy Boda

1.

Taurus Limited produces three products ---- A,B and C from the same manufacturing facilities. The cost and other details of the three products are as follows: A B C Selling price / unit (Rs.) 200 160 100 Variable cost / unit (Rs.) 120 120 40 Fixed expenses / month (Rs.) 2,76,000 Maximum productin p.m. (units) 5000 8000 6000 Total hours available for the month 200 hours Maximum demand p.m. (units) 2000 4000 2400 The processing hours cannot be increased beyond 200 hours per month. You are required to Compute most profitable product mix Compute overall breakeven sales of the company for the month based on the mix calculated in above question. Kumaraswamy Boda

Vinak ltd produces three products furnishes you the following data for 2006-07
A B C

Selling price per unit 100 75 50 Profit volume ration 10 20 40 Maximum sales potential (Units) 40,000 25,000 10,000 R.M content as % of V.C.% 50 50 50 The fixed expenses are estimated at Rs.6,80,000. The company uses a single raw material in all the three products. Raw material is of short supply and company has a quota for the supply of raw material for the value of Rs.18,00,000 for the year 2006-07 for the manufacture of its products to meet its sales demand. You are required to Set a product mix which will give the maximum overall profit keeping the short supply of raw material in view Compute that maximum profit.
Kumaraswamy Boda