What Do We Mean By Responsibility Accounting In Budgetary Control

Responsibility Accounting is a system where:

• Managers are held responsible for the difference between the actual performance and those budgeted;

• Managers are closely involved in the planning and controlling of the resources and having responsibility center which can be a division or department in the organization to be responsible for their performance.

There are basically the following four types of Responsibility centers:

COST CENTER

Here, the manager is responsible for costs. Examples like the manager for Purchasing department and Maintenance department

REVENUE CENTER

Here, the manager is responsible for generating sales. A typical example is the Sales Department

PROFIT CENTER

The manager is responsible for both revenue and cost. The reason been Revenue minus Cost is the Profit. The manager is therefore overall responsible or accountable for making profit for the company. A company has many restaurants which are all profit center. A manager is assigned to each restaurant to make sure it is a profit center.

INVESTMENT CENTER

An example of an investment center is a Corporate division responsible for project investments. Here, the manager is responsible for the investments which includes all the revenue, costs and investments (invested capital or assets)