MA..

2. Responsibility Accounting (RA)



One of the uses of Management Accounting is
Management Control
Among the different techniques RA plays a
significant role in measuring divisional
performance.
RA collects and reports planned and actual
accounting information about inputs and out
puts of RC

3. 
To determine the contribution of that Divisions/RCs

To provide the basis for evaluating the divisional
performance

To motivate divisional managers

4. Cost Centers - responsible only to inputs (cost)
• Performance is measured in terms of cost
• Efficiency and effectiveness cannot be measured
Profits centers- responsible to both inputs (cost)
and outputs (revenues)
• Performance is measured in terms of profits
• Both
efficiency and effectiveness can be
measured

5. 

One of the problems of profit centre is transfer
pricing
Transfer pricing may be either cost based or
market based –
at cost- transfer at actual cost or standard cost
at cost plus a mark-up price- a profit margin is
added to its cost. This is useful for profit center
analysis. If it is decided with pre determine
target , this is useless.

6. 

market price- when there is an out side
market, market price can be applied (subject to
adjustment for selling price and discount)
when there is no clear market- cost plus profit
margin can be applied)
market is not readily available- bids from
several manufactures form the basis.
negotiable price- mutually agreed price

7. 
Performance can be measured :
- ROI
- Net income
- Residual income