Example of Responsibility Accounting
Here is the Company Structure of a Manufacturing Company
- Head Office: Oversees the entire organization.
- Production Department: Divided into Cost Centers.
- Sales Department: Divided into Revenue Centers.
- Regional Offices: Divided into Profit Centers.
- Investment Division: Acts as an Investment Center.
1. Production Department (Cost Center)
The production department is responsible for manufacturing products. The manager focuses on controlling production costs, such as raw materials, labor, and overheads.
Key Metrics:
- Direct Material Costs
- Direct Labor Costs
- Manufacturing Overhead
Example:
- Budgeted Cost for the Month: $100,000
- Actual Cost for the Month: $95,000
- Performance: The manager successfully reduced costs by $5,000.
2. Sales Department (Revenue Center)
The sales department is responsible for generating revenue through product sales. The manager focuses on achieving sales targets.
Key Metrics:
- Monthly Sales Revenue
- Sales Volume
Example:
- Budgeted Revenue for the Month: $200,000
- Actual Revenue for the Month: $210,000
- Performance: The manager exceeded the sales target by $10,000.
3. Regional Office (Profit Center)
The regional office is responsible for both generating revenue and controlling costs within its region. The manager focuses on maximizing profitability.
Key Metrics:
- Revenue
- Costs
- Net Profit
Example:
- Budgeted Revenue: $300,000
- Actual Revenue: $320,000
- Budgeted Costs: $250,000
- Actual Costs: $260,000
- Budgeted Profit: $50,000
- Actual Profit: $60,000
- Performance: The manager increased profit by $10,000 despite higher costs.
4. Investment Division (Investment Center)
The investment division is responsible for the returns on investments made in various projects. The manager focuses on maximizing return on assets.
Key Metrics:
- Return on Investment (ROI)
- Asset Utilization
Example:
- Budgeted ROI: 15%
- Actual ROI: 18%
- Performance: The manager achieved a higher ROI, indicating efficient use of assets.