University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

79

Pages:

2
Author:

stud_ice13

Steps to Create a Responsibility Accounting Report 1. Identify Responsibility Centers and Their Managers: o Cost Centers: Departments that incur costs without generating revenue (e.g., the Beverage and Food departments). o Profit Centers: Units that generate revenue and incur costs but don’t make major investment decisions (e.g., Kraft Heinz’s product lines). o Investment Centers: Units that generate revenue, incur costs, and handle major investment decisions (e.g., the chief operating officer for U.S. operations at Kraft Heinz). 2. Define Controllable and Uncontrollable Costs: o Controllable Costs: Costs managers can influence, such as departmental supplies, utilities, and labor costs. o Uncontrollable Costs: Costs outside a manager’s direct influence, such as higher-level salaries and expenses dictated by corporate policy. 3. Structure of Responsibility Accounting Reports: o Department-Level Report:  Show actual vs. budgeted costs for each controllable item within the department (e.g., direct materials, direct labor, and supplies).  Calculate variances to determine if actual costs are over (unfavorable) or under (favorable) budgeted amounts. o Plant-Level Report:  Aggregate each department’s controllable costs to show the overall performance of the plant.  Include larger overhead costs that the plant manager controls, but exclude items they can’t influence, such as executive salaries. Example Responsibility Accounting Report for Rios Co. Assume Rios Co. has two departments in its Western region manufacturing plant: Motorcycle and ATV. Each department has its own direct materials, labor, and supplies costs, which the department managers control. The plant manager oversees these departments and additional plant-wide costs. 1. Department-Level Responsibility Reports: For each department manager (Motorcycle and ATV): • • • Direct Materials (actual vs. budgeted, with variances) Direct Labor (actual vs. budgeted, with variances) Supplies Used (actual vs. budgeted, with variances) Each line item in the report will show: • • • Budgeted Cost: Expected cost for each item. Actual Cost: Realized cost. Variance: Difference between actual and budgeted costs, labeled as favorable (F) or unfavorable (U). 2. Plant Manager’s Responsibility Report: The report aggregates total controllable costs from each department and includes additional plant-wide controllable costs (e.g., utilities and maintenance). Example Report Structure: Item Budgeted Cost Actual Cost Variance Motorcycle Department - Direct Materials $X,000 $Y,000 $(Y-X) U/F - Direct Labor $X,000 $Y,000 $(Y-X) U/F - Supplies $X,000 $Y,000 $(Y-X) U/F ATV Department - Direct Materials $X,000 $Y,000 $(Y-X) U/F - Direct Labor $X,000 $Y,000 $(Y-X) U/F - Supplies $X,000 $Y,000 $(Y-X) U/F Plant-Wide Costs - Utilities $X,000 $Y,000 $(Y-X) U/F - Maintenance $X,000 $Y,000 $(Y-X) U/F $Y,000 $(Y-X) U/F Total Controllable Costs $X,000 Interpretation of Variances After compiling the report: • • Favorable Variance (F): Indicates effective cost control. Unfavorable Variance (U): Indicates areas where costs exceeded expectations, requiring further investigation or corrective actions. This report format allows for performance assessment based solely on costs that managers have control over, making it easier to identify areas of strength and those needing improvement.