with suitable example explain and analyse what responsibility centre is
Answers
You’ve learned how segments are established within a business to increase decision-making and operational effectiveness and efficiency. In other words, segments allow management to establish a structure of operational accountability.
The terminology changes slightly when we think about accountability relating to the financial performance of the segment. In a decentralized organization, the system of financial accountability for the various segments is administered through what is called responsibility accounting.
Responsibility accounting is a basic component of accounting systems for many companies as their performance measurement process becomes more complex. The process involves assigning the responsibility of accounting for particular segments of the company to a specific individual or group. These segments are often structured as responsibility centers in which designated supervisors or managers will have both the responsibility for the performance of the center and the authority to make decisions that affect the center.
Often, businesses will use the segment structure to establish the responsibility accounting framework. You might think of segments and responsibility centers as two sides of the same coin: segments establish the structure for operational accountability whereas responsibility centers establish the structure for financial accountability. Both segments and responsibility centers (which will likely be the same) attempt to accomplish the same goal: ensure all sectors of the business achieve the organization’s strategic goals.
Before learning about the five types of responsibility centers in detail, it is important to understand the essence of responsibility accounting and responsibility centers.