RESPONSIBILITY ACCOUNTING
& VERTICAL INTEGRATION
Responsibility Accounting
System of control where responsibility is assigned for the control of costs
Emphasis is on men rather than on systems
Also called profitability accounting and activity accounting
Collects and reports both planned actual accounting information in terms of responsibility centres
Essential Features
Inputs and Outputs or Costs and Revenues
Planned and Actual Information or Use of Budgeting
Identification of Responsibility Centres
- cost centres
- profit centres
- investment centres
Assigning Costs to Individuals and Limiting their Efforts to Controllable Costs
Transfer Pricing Policy
Relationship between organisation structure and responsibility centres
Advantages and Disadvantages
Provides a way to motivate lower level managers and workers
Provides a way to manage an organization that would otherwise be unmanageable
Stovepipe organization
Tend to compete to optimize their own performance measurements rather than working together to optimize the performance of the system
Numeric Examples
Vertical Integration
When a company controls more than one stage of the supply chain
Forward integration is when a company at the beginning of the supply chain controls stages farther along
Backward integration is when a business at the end of the supply chain takes on activities "upstream."
Four degrees of vertical Integration
Full Vertical Integration
Quasi Vertical Integration
Long-term Contracts
Spot Contracts
Advantages
Company doesn't have to rely on suppliers
Suppliers have a lot of market power and can dictate terms
Economies of scale , efficient
“Knock off" the most popular brand-name products
Low prices
Disadvantages
Expense – more investment
Reduces flexibility
Loss of focus
Not likely that any company will have a culture that supports both retail stores and factories
Numeric Example
References
McNair, C. J. and L. P. Carr, 1994. Responsibility redefined: Changing concepts of accounting-based control. Advances in Management Accounting: 85-117.
Elliott, R. K. 1992. The third wave breaks on the shores of accounting. Accounting Horizons 6 (June): 61-85
Relevant Cost
Relevant Cost
Cost which are relevant for a particular business decision. They are not historical cost but future costs to be associated with different inputs and activities related a particular business decision(Ray Garrison, 2015)
.
Relevant Cost
Relevant cost is expected future cost which differs for alternative course. Usually variable costs are relevant while fixed cost are non-relevant(Ray Garrison, 2015).
Relevant Cost
However, It is not essential that all variable cost are relevant and all fixed cost are irrelevant. Fixed or variable costs that differ for various alternatives are relevant costs(Ray Garrison, 2015)
.
Relevant Cost
Relevant costs draw our alternation to those elements of cost which are relevant for decision(Ray Garrison, 2015).
Return on Investment
A return on investment (ROI) analysis is a way to calculate your net financial gains (or losses), taking into account all the resources invested and all the amounts gained through increased revenue, reduced costs, or both(Ray Garrison, 2015).
Return on Investment
Utilizing ROI as an arranging apparatus. Amid the arranging procedure that goes before the execution of progress activities, anticipated ROI can be utilized to assess how the arranged mediation will influence income and working expenses and to change the intercession to all the more likely enhance both quality and money related execution. What's more, ROI can be utilized to demonstrate to what extent it will take for mediation to make back the initial investment—that is, for the profits of the training improvement to balance the forthright and continuous usage costs. This examination should be possible utilizing information from the writing(Ray Garrison, 2015).
Return on Investment
Using ROI as an evaluation tool. Actual ROI can be calculated after a practice improvement has been implemented to assess its value and inform decisions on future improvement actions. This analysis can be done using actual data from your organization(Ray Garrison, 2015).
Return on Investment
Potential clients of this instrument incorporate people who will add to ROI counts, which may incorporate medical clinic or wellbeing framework monetary, quality, or expository staff, just as analysts, information investigators, and software engineers(Ray Garrison, 2015).
References
Ray Garrison, E. N. (2015). Managerial Accounting (15 ed.). McGrew Hill.
