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RESPONSIBILITY ACCOUNTING & VERTICAL INTEGRATION
Responsibility Accounting
System of control where responsibility is assigned for the control of costs
Emphasis is on men rather than on systems
Also called profitability accounting and activity accounting
Collects and reports both planned actual accounting information in terms of responsibility centres
Essential Features
Inputs and Outputs or Costs and Revenues
Planned and Actual Information or Use of Budgeting
Identification of Responsibility Centres
– cost centres
– profit centres
– investment centres
Assigning Costs to Individuals and Limiting their Efforts to Controllable Costs
Transfer Pricing Policy
Relationship between organisation structure and responsibility centres
Advantages and Disadvantages
Provides a way to motivate lower level managers and workers
Provides a way to manage an organization that would otherwise be unmanageable
Stovepipe organization
Tend to compete to optimize their own performance measurements rather than working together to optimize the performance of the system
Numeric Examples
Vertical Integration
When a company controls more than one stage of the supply chain
Forward integration is when a company at the beginning of the supply chain controls stages farther along
Backward integration is when a business at the end of the supply chain takes on activities “upstream.”
Four degrees of vertical Integration
Full Vertical Integration
Quasi Vertical Integration
Long-term Contracts
Spot Contracts
Advantages
Company doesn’t have to rely on suppliers
Suppliers have a lot of market power and can dictate terms
Economies of scale , efficient
Knock off” the most popular brand-name products
Low prices
Disadvantages
Expense more investment
Reduces flexibility
Loss of focus
Not likely that any company will have a culture that supports both retail stores and factories
Numeric Example
References
McNair, C. J. and L. P. Carr, 1994. Responsibility redefined: Changing concepts of accounting-based control. Advances in Management Accounting: 85-117.
Elliott, R. K. 1992. The third wave breaks on the shores of accounting. Accounting Horizons 6 (June): 61-85
