Review the three components in the background material to answer the questions and make computations relating to responsibility accounting.
- What is the fundamental principle of responsibility accounting?
- List five important factors that should be considered in designing reports for a responsibility accounting system.
- How soon should accounting reports be prepared after the end of the performance measurement period? Explain.
- Name and describe three types of responsibility centers and list their main characteristics.
- Give five real-world examples of at least two of the types of responsibility centers.
- Many organizations limit the number of expense (cost) centers.
- List three reasons for wanting to limit cost centers.
- List three ideas for eliminating or reducing the size of an existing cost center.
- What is the connection between the extent of decentralization and the investment center concept?
- Give some of the advantages of decentralization.
- Differentiate between a direct cost and an indirect cost of a segment. What happens to these categories if the segments to which they are related are eliminated?
Review the background material and do some research to learn about organizations using responsibility centers as part of an organizational structure. Information can be found in the news, research papers, and on investment sites. Another option is to locate the financial statements for a company, make some assumptions, and prepare your own assessment of the organizational structure. Describe the situation and the results. Show computations when appropriate.