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employee safety performance, and other information of interest to workers can be shown in plant areas. These displays when projected with the name and picture of an employee help keep the employees informed and interested in their job performance. All but the smallest of manufacturing businesses are usually organized so that different managerial duties are assigned to different persons. Along with each manager s authority goes a responsibility for managing the segment of business efficiently. Figure 11.3 shows a simple organization chart for a typical manufacturing plant. In responsibility reporting, information is reported on the basis of areas and responsibility. For example, reports containing information useful to foremen for performing their jobs will be directed to departmental foremen. This means that the responsibility accounting and reporting system will be only as detailed as the company s organization plan. In a plant with the organization shown in Fig. 11.3, reports could be prepared for the foremen, the supervisors, the purchasing agent, the production manager, the sales manager, the salespeople, and the president. A company that has other organization units must work these into the plan if those units are to be served by responsibilityoriented reports. A responsibility-oriented accounting system should generate reports that provide information on which each manager can base decisions. The system should also provide reports showing the results of these decisions.
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The responsibility centers may be cost centers, revenue (sales) centers, or profit centers. In Fig.11.3, each producing department and each of the two service departments (purchasing and accounting) can be considered a cost center if the costs of operations are analyzed along those lines. Each product can be considered a profit center, with the responsibility held jointly by the sales manager (of revenues) and the product supervisors (for product costs). The sales office can be considered a revenue center that produces the gross sales revenues of the company.
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Costs and revenues are reported to managers according to their controllable and uncontrollable characteristics. A cost item is controllable by a manager if action directly affects the amount of cost incurred. Assume, for example, that the product managers have sole authority to purchase equipment, thus incurring depreciation costs. The depreciation cost is then controllable at the manager s level but uncontrollable at the department foreman level. Consequently, the department foremen cannot be held responsible for depreciation
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FIGURE 11.3
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A simple organization chart for a manufacturing plant.
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charges, and that cost is not reported as part of the responsibility. The principle of controllable-uncontrollable classification should be treated consistently at all management levels. An illustration of responsibility cost reporting and the pyramiding construction of reports is shown in Fig. 11.3.
Construction of the Report
Each report delivered to a manager should be constructed according to the usefulness to the manager of information provided by the accounting system. The actual costs can be compared with the budgeted figures, standard-cost variances can be shown, and unit-cost calculations can be made. Any presentation of the information that promotes for sound decision making is suitable. The classification of costs as controllable or uncontrollable can be difficult. One of the most troublesome problems is obtaining the agreement and cooperation of the foremen, supervisors, and managers who will be assigned certain responsibilities. It is important to make certain that the reports will be used for making decisions and directing activities. To this end, the supervisory employees involved should take part in planning the reporting system. Preparation of format and content of responsibility reports can serve to involve all the managers in the communication-information system, and the whole process can help bring managers together into a smooth-working team.
11.3.6 Analyzing Cost and Profit Data
The responsibility-center accounting scheme is just one way to organize cost and profit data for analyzing the results of operations. For a firm that produces and sells more than one product in more than one geographical area to customers that have a variety of characteristics, many other possible types of analysis are available. Several are listed next: Product lines. Analysis by product lines can show which products are most profitable. It can point up the need for costsaving programs or identify products for maximum sales promotion. Special orders. The results of the production of special orders should always be analyzed to determine whether producing to custom-design specifications is really profitable. Such analyses could lead to special pricing formulas, better costestimating procedures, and more efficient use of labor and equipment. Sales analysis. The costs of selling products can be analyzed according to various customer characteristics, taking into account the cost of various selling efforts, as follows:
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