Responsibility Accounting Flashcards

1
Q

What is responsibility accounting?

A

An internal accounting system which enables actual performance to be compared with budgeting performance.

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2
Q

What are the types of responsibility centres and the managers’ control

A

Cost centre - costs

Revenue centre - revenue only

Profit centre - Costs and sales prices

Investment centre - costs, sales prices, output volume and investments (NCA and working capital)

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3
Q

What are the main performance measurements for the responsibility centres?

A

Cost - Variance analysis

Revenue - meeting targets

Profit centre - Level of net income/profits

Investment centre - return on investment / residual income

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4
Q

What is the control process?

A

Measuring actual results against targets, and taking corrective measures. Controls are in place to help attain targets

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5
Q

What are the three levels of control?

A

Strategic controls
Management controls
Operational controls

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6
Q

What is a strategic control?

A

control over the strategy of an organisation, identifying how it can compete in the industry.

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7
Q

What is a management control?

A

linking operational controls with strategic controls

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8
Q

What are operational controls?

A

usually low level internal controls, such as quantity of raw materials used

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9
Q

What are action or behavioural controls?

A

They involve observing workers as they work, appropriate where cause-effect relationships are clear, and the focus should be on prevention rather than detection.

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10
Q

What are social controls?

A

These are controls through informal means such as solidarity and commitment, norms and values.

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11
Q

What are results/output controls?

A

These involve comparing actual results with budget, reporting the outcomes of work effort. This includes establishing performance measures, targets, measuring performance and providing rewards or punishment.

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12
Q

What is feedback?

A

Feedback occurs when the output of a system are used to control the system by adjusting the inputs where required. (Cybernetic/Mechanical)

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13
Q

What is a feedforward control?

A

Control based on forecast results, ie comparing the expected outputs with the desired and taking action to address this.

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14
Q

What are the four conditions for effective controls?

A

1 Objectives should be established and known
2 Outputs must be measurable
3 The causes of variations between actual and target must be identifiable
4 Corrective action must be possible

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