Subscribe:

Ads 468x60px

Why responsibility accounting system is necessary?

In addition to financial statement valuations, the reporting elements of the cost management system must address internal needs of a responsibility accounting system. This system provides information to top management about the performance of an organizational subunit and its manager.

For each subunit, the responsibility accounting system separately tracks costs and, if appropriate, revenues. Performance reports are useful only to the extent that the measured performance of a given manager or subunit can be compared to a meaningful baseline. The normal baseline is a measure of expected performance. Expected performance can be denoted in financial terms, such as budgetary figures, or in nonfinancial terms, such as throughput, customer satisfaction measures, lead time, capacity utilization, and research and development activities. 
 
By comparing expected and actual performance, top managers are able to determine which managers and subunits performed according to expectations and which exceeded or failed to meet expectations. Using this information that has been processed and formulated by the cost management system, top managers link decisions about managerial rewards to performance. 

Related Posts Plugin for WordPress, Blogger...