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Responsibility Accounting Terms and Definitions

Are you looking for certain accounting terms and definitions around responsibility accounting (such as: responsibility center, revenue center, cost center)? You came into the right page; they are here.

  • Responsibility accounting – A part of management accounting that involves accumulating and reporting revenues and costs on the basis of the manager who has the authority to make the day-to-day decisions about the items.
  • Responsibility reporting system – The preparation of reports for each level of responsibility in the company’s organization chart.
  • Cost center – A responsibility center that incurs costs but does not directly generate revenues.
  • Profit center – A responsibility center that incurs costs and also generates revenues.
  • Investment center – A responsibility center that incurs costs, generates revenues, and has control over decisions regarding the assets available for use.
  • Controllable cost – A cost over which a manager has control.
  • Controllable margin – Contribution margin less controllable fixed costs.
  • Segment – An area of responsibility in decentralized operations.
  • Decentralization – Control of operations is delegated to many managers throughout the organization.
  • Direct fixed costs – Costs that relate specifically to a responsibility center and are incurred for the sole benefit of the center.
  • Indirect fixed costs – Costs that are incurred for the benefit of more than one profit center.
  • Management by exception – The review of budget reports by top management focused entirely or primarily on differences between actual results and planned objectives.
  • Noncontrollable costs – Costs incurred indirectly and allocated to a responsibility center that are not controllable at that level.
  • Return on investment (ROI) – A measure of management’s effectiveness in utilizing assets at its disposal in an investment center.
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