Responsibility Accounting, Quality Control, and Environmental Cost Management

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12
Chapter Twelve

• Responsibility Accounting, Quality Control, and
  Environmental Cost Management

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Responsibility Centers

• A subunit in an organization whose manager is
  held accountable for specified financial results.

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Responsibility Centers

• Cost Center
• Segment has control over the incurrence of
  costs.

The Paint Department in an automobile plant.
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Responsibility Centers

• Profit Center
• Segment has control over both costs and
  revenues.

Company-owned restaurant in a fast-food chain.
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Measuring Management Performance
Evaluation Tool
Cost standards
Contribution income statement
Rate of return on invested funds or residual
income
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Performance Reports
Shows the budgeted and actual amounts, and the
variances between these amounts, of key financial
results appropriate for the type of
responsibility center.
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Activity-Based Responsibility Accounting
Traditional responsibility-accounting systems
tend to focus on the financial performance
measures of cost, revenue, and profit for
subunits of the organization.
Activity-based costing systems associate costs
with the activities that drive those costs. In
activity-based responsibility accounting
attention is directed not only to costs incurred
but also to the activity creating the cost.
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Behavioral Effects of Responsibility Accounting
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Segmented Reporting

• A segment is any part or activity of an
  organization about which a manager seeks cost,
  revenue, or profit data.

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Segmented Reporting
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Key Features of Segmented Reporting

• Contribution format.
• Controllable versus uncontrollable expenses.
• Segmented income statement.

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Segmented Income Statement
ContributionFormat
Costs that cannot be controlled by the segment
manager are isolated.
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Customer Profitability Analysisand
Activity-Based Costing
Company Sales Rep
Customer
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Total Quality Management
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Total Quality Management
Ranking between products or services having the
same functional use.
Degree to which actual product or service
meets its design specs. and is free of mfg.
defects.
Quality of Design
Quality of Conformance
Grade
Judged by . . .
Requires a certain . . .
Must be sup- ported by . . .
Product meets customer expectations for the grade
level chosen.
Customers
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Cost of Quality

• Quality costs include the follows
• Prevention costs,
• Appraisal costs,
• Internal failure costs, and
• External failure costs.

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Traditional Perspective of Product Quality
Total Quality Costs
Costs
Prevention and Appraisal Costs
Failure Costs
Percentage of Defective Products
0
100
Minimum
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Quality Cost Reports

• A graphic Quality Cost Report might look like
  this

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ISO 9000 Standards

• The International Standards Organization (ISO),
  require that a manufacturer have a well-defined
  quality control system in place, and that the
  target level of product quality be maintained.
• Sustain quality of product.
• Effective quality control system in place.
• Provide purchaser confidence in the product.

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End of Chapter 12