Principles of responsibility accounting are as follows:

Responsibility accounting is not only a control device but also helpful in decision-making. The information collected under this system is helpful to management in planning its future actions. The past performance of various cost centres also helps in fixing their future targets.

Responsibility centers are segments within a responsibility accounting structure. Five types of responsibility centers include cost centers, discretionary cost centers, revenue centers, profit centers, and investment centers. Cost centers are responsibility centers that focus only on expenses.

• Determination of responsibility centres.
• A target is fixed for each responsibility centre.
• Actual performance is compared with the target.
• The variances from the budgeted plan are analysed so as to fix the responsibility of centres.

After identifying responsibility centres and establishing authority-responsibility relationships, responsibility accounting system involves assigning of costs and revenues to individuals. Only those costs and revenues over which an individual has a definite control can be assigned to him for evaluating his performance.

Social accounting emphasises the notion of corporate accountability. Objectives of Social Responsibility Accounting: Main objectives of social accounting are to help society by providing different facilities by enterprise and to record them.

(i) Generally the prerequisites for a successful responsibility accounting scheme i.e., a well-defined organisation structure, proper delegation of work and responsibility, proper allocation of costs, a proper system of reporting are absent and makes it difficult to have a responsibility accounting.

Responsibility accounting provides reports to different levels of management. The amount of detail varies depending on the manager’s level in the organization. The report to the company’s president includes summary totals of all the stores’ performance levels plus any additional items under the president’s control.

Answer: (b) Accounting centre is not applicable to responsibility accounting.

Definition: Variance analysis is the study of deviations of actual behaviour versus forecasted or planned behaviour in budgeting or management accounting. This is essentially concerned with how the difference of actual and planned behaviours indicates how business performance is being impacted.

Types of Variance (Cost, Material, Labour, Overhead,Fixed Overhead, Sales, Profit)

• Cost Variances.
• Material Variances.
• Labour Variances.
• Overhead (Variable) Variance.
• Fixed Overhead Variance.
• Sales Variance.
• Profit Variance. Conclusion.

Principles of Budgeting

• Principle of Annuality. This implies that a budget is prepared every year on annual basis.
• Rule of Lapse.
• Fiscal Discipline.
• Inclusiveness.
• Accuracy.
• Transparency and Accountability.

Process costing is a method of costing used mainly in manufacturing where units are continuously mass-produced through one or more processes. The method used is to take the total cost of the process and average it over the units of production.

Question: A process costing system is used by companies that produce similar or identical units of product in batches employing a consistent process. Examples of companies that use process costing include Chevron Corporation (petroleum products), the Wrigley Company (chewing gum), and Pittsburgh Paints (paint).

Process costing is used when there is mass production of similar products, where the costs associated with individual units of output cannot be differentiated from each other. In other words, the cost of each product produced is assumed to be the same as the cost of every other product.

Advantages of Process Costing With the standardization of products, managers track performance, productivity, and costs over time. Process costing allows for greater flexibility when making changes in the production process. Managers can target specific departments’ processes or materials to lower production costs.

Top 3 Elements of Production Cost in Process Costing (With Illustration)

• Production Cost Element # 1. Materials:
• Production Cost Element # 2. Labour:
• Production Cost Element # 3. Production Overhead: