Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Chapter 12Chapter 12

Responsibility Accounting, Quality

Control, and Environmental Cost

Management

Responsibility Accounting, Quality

Control, and Environmental Cost

Management

12-2

Responsibility AccountingResponsibility AccountingResponsibility accounting is used to measure

the performance of people and departments to foster goal congruence.

Responsibility accounting is used to measure the performance of people and departments

to foster goal congruence.

12-3

Responsibility CentersResponsibility Centers

A subunit in an organization whose manager is held accountable for

specified financial results.

A subunit in an organization whose manager is held accountable for

specified financial results.

12-4

Responsibility CentersResponsibility Centers

Cost Center Segment has

control over the incurrence

of costs.

Cost Center Segment has

control over the incurrence

of costs.

The Paint DepartmentThe Paint Departmentin an automobile plant.in an automobile plant.

Revenue Center Segment

is responsiblefor the revenue of

a unit.

Revenue Center Segment

is responsiblefor the revenue of

a unit.

The ReservationsThe ReservationsDepartment of an airline.Department of an airline.

12-5

Responsibility CentersResponsibility Centers

Profit Center Segment has

control over both costs and

revenues.

Profit Center Segment has

control over both costs and

revenues.

Company-owned Company-owned restaurant in a fast-food restaurant in a fast-food

chain.chain.

Investment Center

Segment has control over profits

and invested capital.

Investment Center

Segment has control over profits

and invested capital.

A division of aA division of alarge corporation.large corporation.

12-6

Performance ReportsPerformance ReportsFebruary Year to Date February Year to Date February Year to Date

Company . . . . . . . . . . . . . . . . . . . . . . $30,660 $64,567 $30,716 $64,570 $56 F $ 3 FMaui Division . . . . . . . . . . . . . . . . . . $18,400 $38,620 $18,470 $38,630 $70 F $10 FOahu Division . . . . . . . . . . . . . . . . . . 12,260 25,947 12,246 25,940 14 U 7 UTotal profit . . . . . . . . . . . . . . . . . . . . $30,660 $64,567 $30,716 $64,570 $56 F $ 3 FOahu DivisionWaimea Beach Resort . . . . . . . . . . . $6,050 $12,700 $6,060 $12,740 $10 F $40 FDiamond Head Lodge. . . . . . . . . . . 2,100 4,500 2,050 4,430 50 U 70 UWaikiki Sands Hotel . . . . . . . . . . . . . 4,110 8,747 4,136 8,770 26 F 23 FTotal profit . . . . . . . . . . . . . . . . . . . . $12,260 $25,947 $12,246 $25,940 $14 U $ 7 UWaikiki Sands HotelGrounds and Maintenance . . . . . . . . ($45) ($90) ($44) ($90) $ 1 F —Housekeeping and Custodial . . . . . . (40) (90) (41) (90) 1 U —Recreational Services . . . . . . . . . . . . 40 85 41 88 1 F $ 3 F Hospitality . . . . . . . . . . . . . . . . . . . . 2,800 6,000 2,840 6,030 40 F 30 F Food and Beverage . . . . . . . . . . . . . 1,355 2,842 1,340 2,832 15 F 10 U Total profit . . . . . . . . . . . . . . . . . . . . $4,110 $8,747 $4,136 $8,770 $26 F $23 F Food and Beverage DepartmentBanquets and Catering . . . . . . . . . . . $600 $1,260 $605 $1,265 $ 5 F $ 5 F Restaurants . . . . . . . . . . . . . . . . . . . 1,785 3,750 1,760 3,740 25 U 10 U Kitchen. . . . . . . . . . . . . . . . . . . . . . . (1,030) (2,168) (1,025) (2,173) 5 F 5 U Total profit . . . . . . . . . . . . . . . . . . . . $1,355 $2,842 $1,340 $2,832 $15 U $10 U KitchenKitchen staff wages . . . . . . . . . . . . . ($80) ($168) ($78) ($169) $ 2 F $ 1 U Food . . . . . . . . . . . . . . . . . . . . . . . . (675) (1,420) (678) (1,421) 3 U 1 U Paper products. . . . . . . . . . . . . . . . . (120) (250) (115) (248) 5 F 2 F Variable overhead. . . . . . . . . . . . . . . (70) (150) (71) (154) 1 U 4 U Fixed overhead. . . . . . . . . . . . . . . . . (85) (180) (83) (181) 2 F 1 U Total expense . . . . . . . . . . . . . . . . . . ($1,030) ($2,168) ($1,025) ($2,173) $ 5 F $ 5 U

*Numbers w ithout parentheses denote profit; numbers w ith parentheses denote ex penses; numbers in thousands.

†F denotes fav orable v ariance; U denotes unfav orable v ariance.

Flexible Budget* Actual Results* Variance†

12-7

Cost AllocationCost Allocation

The process of assigning the costs in the cost pool to the cost objects is called cost allocation or cost distribution.

12-8

Cost Allocation BasesCost Allocation Bases

An allocation base is a measure of activity,

physical characteristic, or

economic characteristic that is associated with the

responsibility centers, which are the cost

objects in the allocation process.

12-9

Behavioral Effects of Behavioral Effects of Responsibility AccountingResponsibility Accounting

InformationversusBlame

Controllability

MotivatingDesiredBehavior

12-10

Segmented ReportingSegmented Reporting

Segmented reporting refers to the preparation of accounting

reports by segment and for the organization as a whole.

A segment is any part or activity of an organization

about which a manager seeks cost, revenue, or profit data.

12-11

Segmented ReportingSegmented Reporting

DivisionsDivisions•

Units•

Aloha Hotels and Resorts

Aloha Hotels and Resorts

Oahu DivisionOahu DivisionMaui DivisionMaui Division

Waikiki Sands Hotel

Waikiki Sands Hotel

Diamond Head Lodge

Diamond Head Lodge

Waimea Beach Resort

Waimea Beach Resort

12-12

Segmented ReportingSegmented Reporting

12-13

Key Features of Segmented Key Features of Segmented ReportingReporting

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

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

12-14

Cost of QualityCost of Quality

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

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

12-15

Cost of QualityCost of Quality

The opportunity cost of lost sales and decreased

market share can represent a

significant hidden cost.