Discussion Response 7A

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Respond to the discussion post below with YOUR educated opinion in 3-4 sentences WITH scholarly source backing it up:

Responsibility Accounting measures performance of an organization by segmenting the organization into responsibility centers.   These responsibility centers can include revenue, cost, profit and investment centers.   The reason some organizations use this type of approach is to assign responsibility to managers in each segment in which they have direct influence or “control” over the performance of that area.  A revenue center manager would likely rely on factors relating to revenue, and assign tasks and focus groups to their teams to drive revenues.  A cost responsibility manager would likely task a team with driving down costs by analyzing and focusing on what can be adjusted to decrease costs.   (Martin, J.)

Responsibility Accounting can also be considered controllability.   The manager of that segment or responsibility center should in theory only be responsible for the driver in which the segment or center is concerned.   Most organizations do not limit responsibility in this way to management, but do put emphasis on a revenue center manager to drive the revenues and focus their performance review mainly on revenues.   But an organization would not want to disregard other “center” drivers to be ignored by a manager just because it wasn’t in their responsibility center.   (Martin, J.)

The concept of responsibility accounting allows for manageability in an organization by using the centers or segments as a way to control and monitor, then to funnel into the overall performance of the organization.  Responsibility accounting also allows all levels of management to have a part in the center, not just top-level, which allows for a more productive segment or center.   However, many have thought that the centers tend to only focus on what they are assigned, and there may be a lack of horizontal communication, fixed results, and tension between the centers.   This tool can also disregard inter-center goals in which multiple responsibility centers share a common goal for the organization.   One area I see this happening would be a profit center manager wanting to discuss the profitability of the company with the revenue and cost center managers.   It may be hard for the profit center manager to get the other two managers to share their information readily, and tensions can arise.

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