1. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 12 Responsibility Accounting, Quality Control, and Environmental Cost Management

2. 12-2 Responsibility Accounting Responsibility accounting is used to measure the performance of people and departments to foster goal congruence.

3. 12-3 Responsibility Centers A subunit in an organization whose manager is held accountable for specified financial results.

4. 12-4 Responsibility Centers Cost Center S egment has control over the incurrence of costs. Cost Center S egment has control over the incurrence of costs. The Paint Department in an automobile plant. Revenue Center Segment is responsible for the revenue of a unit. Revenue Center Segment is responsible for the revenue of a unit. The Reservations Department of an airline.

5. 12-5 Responsibility Centers Profit Center Segment has control over both costs and revenues. Profit Center Segment has control over both costs and revenues. Company-owned restaurant in a fast-food chain. Investment Center Segment has control over profits and invested capital. Investment Center Segment has control over profits and invested capital. A division of a large corporation.

6. 12-6 Performance Reports

7. 12-7 Cost Allocation The process of assigning the costs in the cost pool to the cost objects is called cost allocation or cost distribution.

8. 12-8 Cost 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.

9. 12-9 Behavioral Effects of Responsibility Accounting Information versus Blame Controllability Motivating Desired Behavior

10. 12-10 Segmented 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.

11. 12-11 Segmented Reporting Divisions Units Aloha Hotels and Resorts Oahu Division Maui Division Waikiki Sands Hotel Diamond Head Lodge Waimea Beach Resort

12. 12-12 Segmented Reporting

13. 12-13 Key Features of Segmented Reporting Œ Contribution format.  Controllable versus uncontrollable expenses. Ž Segmented income statement. Œ Contribution format.  Controllable versus uncontrollable expenses. Ž Segmented income statement.

14. 12-14 Cost 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.

15. 12-15 Cost of Quality The opportunity cost of lost sales and decreased market share can represent a significant hidden cost.