RESPONSIBILITY ACCOUNTING

Responsibility accounting is an underlying concept of accounting performance measurement systems. The basic idea is that large diversified organizations are difficult, if not impossible to manage as a single segment, thus they must be decentralized or separated into manageable parts. These parts, or segments are referred to as responsibility centers. Common responsibility centers include : Revenue Centers Cost Centers Profit Centers Investment Centers
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Responsibility Accounting
This approach allows responsibility to be assigned to the segment managers that have the greatest amount of influence over the key elements to be managed. These elements include revenue for revenue center (a segment that mainly generates revenue with relatively little costs), costs for a cost center ( a segment that generates costs, but no revenue), a measure of profitability for profit center ( a segment that generates both revenue and costs ) return on Investment ( ROI ) for an investment center ( a segment such as a division of a company where the manager controls the acquisition and utilization of assets, as well as revenue and costs).
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CONTROL THROUGH COSTING

The main idea behind control through costing is to generate the control over the costs usually the standard cost. Standard costs are certain predetermined level of operational costs that are computed according to the qualities , prices and certain level of operations. In simple terms control through costing is actually the method of cost accounting in which standard costs are used in recording the transactions and the actual costs are compared with the standard costs to find out the variations and reason behind such variations.
When you want to measure some thing, you must take some parameter or yardstick for measuring. We can call this as standard. What are your daily expenses? An average of $50! If you have been spending this much for so many days, then this is your daily standard expense. The word standard means a benchmark or yardstick. The standard cost is a predetermined cost which determines in advance what each product or service should cost under given circumstances. In the words of Backer and Jacobsen, Standard cost is the amount the firm thinks a product or the operation of the process for a period of time should cost, based upon certain assumed conditions of efficiency, economic conditions and other factors. Definition The CIMA, London has defined standard cost as a predetermined cost which is calculated from managements standards of efficient operations and the relevant necessary expenditure. They are the predetermined costs on technical estimate of material labor and overhead for a selected period of time and for a prescribed set of working conditions. In other words, a standard cost is a planned cost for a unit of product or service rendered.
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Meaning of Standard

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PROCESS OF CONTROL THROUGH COSTING

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Fixation of Standards : Standards are the benchmarks against which the comparisons would be made. The standards are set for different components of the costs separately and are fixed on the basis of past records. Actual Cost : In this step the actual cost is calculated from the various records in order to make certain types of comparisons. Comparisons : This step involves the comparison between actual cost and the standards that have generated in order to find out the variations if they occur and cause of such variations. Remedial Action : After finding the cause of variations the future cause of action is planned to remove such variations. The process may involve careful scrutiny and analysis of the existing standards and revising them whenever desired.

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INTERNAL AUDIT

Internal Audit is an independent appraisal of operations, conducted under the directions of agency management, to assess the effectiveness of internal administrative and accounting controls and help ensure conformance with managerial policies. In other words Internal Audit is an Independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and make recommendations for improvement over the risk management, internal control and governance processes.

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Tools For Operational Control

TQM ( TOTAL QUALITY MANAGEMENT ) TQM is an integrated organizational approach in delighting customers (both internal and external) by meeting their expectations on a continuous basis through everyone involved with the organization working on continuous improvement in all products, services and processes along with proper problem solving methodology. Indian Statistical Institute TQM is a corporate business management philosophy which recognizes that customer needs and business goals are inseparable. TQM ensures maximum effectiveness and efficiency within a business and secure commercial leadership by putting in place processes and systems which will promote excellence and prevent errors. It ensures that every aspect of the business is aligned to the customer needs and the advancement of business goals without duplication or waste of efforts.

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Process Components Of TQM

Policy Management : It is sometimes, referred as policy deployment, management by policy, or Hoshin Kanri ( in Japanese). Policy Management is a systematic process used to direct corporate resources towards solving problems and making major improvements. Daily Management : Managing day to day activities of the organization in the most effective manner in order to generate maximum efficiency is the major aim of Daily Management. Team Activity : This concept encourages the team activity in the organization according to which the group decision making is considered to be most important for the success of the organization.
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QUALITY CIRCLES
Quality Circles is a small group of employees in the same work area
or doing a similar type of work who voluntarily meet regularly for about an hour every week to identify, analyse and resolve work related problems, leading to improvement in their total performance and enrichment of their worklife.

The quality circle is a small group of people who voluntarily perform quality improvement activities within the workshop or workarea to which they belong. Various quality improvement activities, selfdevelopment, mutual development, control and improvement within the workshop or work area is brought by employing different quality management techniques.

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Tools For Inventory Control

ABC ( Always Better Control ) Analysis A In this category those items are placed which are in the highest priority list need the tightest control, requires frequent deliveries, close follow-up and accurate records. Their volume accounts for 70% of the total inventory value. B Items included in this category are the priority when low or out of stock. Normal control is used and good records are maintained. These items account for 20% of the total inventory value, and 20% of the inventory. C Items in this category are the lowest priority list, simplest method of control. Min/Max is used for ordering them. These parts represent 10% of the total value, and 70% of the volume. D Items in this category include those which are discontinued products.

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ECONOMIC ORDER QUANTITY

Economic Order Quantity is also known as the wilson EOQ Model or simply the EOQ Model. It is defined as the Model that defines the optimal quantity to order that minimizes total variable costs required to order and hold inventory. The model was originally developed by F. W. Harris in 1915, though R.H. Wilson is credited for his early in depth analysis of the model. Underlying Assumptions:-

The demand of the item is known. The lead time(a lead time is the latency (delay) between the initiation and execution of a process. For example, the lead time for ordering a new car from a manufacturer may be anywhere from 2 weeks to 6 months. ) is known and fixed. The receipt of the order occurs in a single instant. Quantity discounts are not calculated as the part of the model Shortages or stockouts do not occur.
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JUST IN TIME

Just In Time is an inventory strategy implemented to improve the return on investment of a business by reducing in process inventory and its associated costs. A strategy of inventory management in which raw materials and components are delivered from the vendor or supplier immediately before they are needed in the manufacturing process. It may also be defined as : A manufacturing system whose goal it is to optimize processes and procedures by continuously pursuing waste reduction.

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JUST IN TIME

The basic idea behind JIT is Eliminating waste and adding value. JIT is based on Shingos seven wastes. Waste of overproduction Waste of waiting Waste of transportation Waste of processing Waste of stocks Waste of motion - any movement of people or machines Waste of Making Defective Products

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GANTT CHARTS

A Gantt Chart is a horizontal bar chart developed as a production control tool in 1917 by Henry L . Gantt, an american engineer and social scientist. Frequently used in project management , a gantt chart provides a graphical illustration of a schedule that helps to plan, coordinate and track specific tasks in a project. Gantt charts using applications such as Microsoft Project or Excel. A Gantt Chart is a popular type of bar chart , that aims to show the timing of tasks or activities as they occur over time. A Gantt Chart is constructed with horizontal axis representing the total time, span of project, broken down into increments ( for example days, weeks or months) and a vertical axis representing the tasks that make up the project.

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Material Requirements Planning

A system of planning and scheduling the time-phased materials requirements for production operations as such, it is geared towards the end-item outputs prescribed in the master production schedule. MRP OBJECTIVES AND METHODS :Inventory Reduction: MRP determines how many of a components are needed and when, in order to meet the master schedule. Reduction in production and delivery lead times : MRP identifies the components their quantities, timings, availabilities and production actions required to meet delivery deadlines. Realistic Commitments : Realistic delivery promises can enhances satisfaction. By using MRP , production can give marketing information about likely delivery times to prospective customers. Increased Efficiency: MRP provides close coordination among centers as products progress through them.

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THANKS

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