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.