Question 1 (b)
Responsibility accounting: evaluation and feedback, not blame
9 marks
- Time to write
- About 18 minutes
Question
Question 1 (b) · 9 marks"Responsibility accounting does not aim at placing blame. Its aim, instead, is to evaluate performance and to provide feedback so that future operations can be improved." Discuss this statement.
Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- evaluateA statement to judge: take a stand on it in your first line, and come back to it at the end.
- evaluateBoth sides: the strengths, the limits, then your own view.
Write it in this order
- Read; underline the asks; jot your points 1 min
- 1 Meaning of responsibility accounting 2 marks 2 min
- 2 Discussion of the statement 5 marks 10 min
- 3 Practices that support improvement 2 marks 4 min
- Check: every ask answered, key terms underlined 1 min
Easy marks
- Meaning of responsibility accounting (step 1, 2 marks): a clear definition and a line on what it covers. It opens the answer, so it takes a minute or two.
Short on time? Keep step 1 short. Trim steps 2 and 3 evenly rather than skip one: each is capped at its own marks.
Try it first. About 18 minutes for 9 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Responsibility accounting is a system in which costs, revenues and investments are collected and reported by responsibility centres, cost, revenue, profit and investment centres, each under a manager who is accountable for the items he or she can control. Budgets are set for each centre, actual results are compared with them, and variances are reported to the manager concerned and to his or her superiors.
1In the paint shop, his clipboard watches only one thing: what the job costs.
Cost centreA segment whose manager is responsible for controlling costs but not for earning revenue
2At the regional office, her handshake is judged against the sales chart behind it.
Revenue centreA regional sales office judged on its sales against target
3The showroom head carries both clipboards—the costs and the takings are his together.
Profit centreA segment whose manager controls both revenues and costs
The statement is correct. The purpose of the reports is to help managers improve future performance, not to punish them for the past.
- Variances are signals, not verdicts. A variance shows that something differs from plan; its cause may be outside the manager's control (a market price rise, a breakdown, an unrealistic standard).
- Controllability. A manager is judged only on what he or she can influence; uncontrollable costs are shown separately, so the system is designed to be fair.
- Feedback. Timely reports tell managers where performance departs from plan, so that they can investigate causes and act: adjust methods, retrain staff, change suppliers or revise plans.
- Learning and better standards. Persistent variances may show that budgets or standards need revision; the information improves planning as well as operations.
- Motivation. Managers who see reports as a fair tool for evaluation accept targets and try to meet them; a blame culture makes them hide problems, set easy targets and resist the system.
- Goal congruence. Linking centre performance with organisational goals guides managers' decisions towards the interest of the firm as a whole.
How the system supports improvement rather than blame
- Participative budgeting, so that managers own their targets.
- Separation of controllable and uncontrollable items in every report.
- Management by exception: attention only to significant variances.
- Analysis of the causes of variances before conclusions are drawn.
- Rewards for good performance as well as review of poor performance.
- Flexible budgets, so that targets reflect the actual level of activity.
Example: a production manager's report shows material usage 6% above standard. Instead of censure, the analysis shows that a new supplier's material has a higher scrap rate. The feedback leads to a change of supplier and a revised inspection routine, and next month's usage returns to standard. The report has improved operations: the purpose the statement describes. Had the manager expected blame, he or she might instead have hidden the scrap or pressed for a looser standard.
Responsibility accounting is a tool for evaluating performance and providing feedback. Used in that spirit, it improves future operations; used to place blame, it defeats its own purpose.
Where the 9 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Meaning of responsibility accounting | 2 |
| 2 | Discussion of the statement | 5 |
| 3 | Practices that support improvement | 2 |
| Total | 9 |
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