[Sticky] Responsibility Accounting
Responsibility accounting is a system that involves identifying responsibility centers and their objectives, developing performance measurement schemes, and preparing and analyzing performance reports of the responsibility centers.
Responsibility Centres: CRPI
- Cost Centre
- Revenue Centre
- Profit Centre
- Investment Centre
Q 1. A profit centre is a centre
(a) Where the manager has the responsibility of generating and maximising profits
(b) Which is concerned with earning an adequate Return on Investment
(c) Both of the above
(d) Which manages cost
Q.2. Responsibility Centre can be categorised into:
(a) Cost Centres only
(b) Profit Centres only
(c) Investment Centres only
(d) Cost Centres, Revenue Centres,Profit Centres and Investment Centres
What comes to your mind when you hear the term 'Operational Efficiency'? To keep it simple, imagine yourself as a manager of a Multinational Corporation. Your goal is to increase market share, produce goods at the lower price and enjoy a competitive advantage over other players in the market. That's when operational efficiency comes in handy. Operational efficiency minimizes waste and maximizes resource capabilities in order to deliver quality products and services to customers. It identifies wasteful processes and resources that drain the organization’s profits and can also design new work processes that improve quality and productivity.
In CMA, we explore the different process that fulfills the above objective. Let's look at each of them in brief starting with JIT
1) Just-In-Time or Lean Operation
Certain key points to be remembered under this system:
(a) Pull system: Items are pulled through production by current demand and not pushed by anticipated demand.
(b) Few carefully selected suppliers: Quality of materials is shifted to suppliers. Long-term contracts are established with few suppliers after careful screening
(c) Kanban: Known as tickets/cards/markers, control the flow of production or parts so that they are produced or obtained in needed amounts at needed times.
(d) Cells: Cells are set of machines grouped to form a semi-circle.
Goals of JIT: Reduced carrying costs, improved quality, elimination of waste, increased competitiveness and higher profits.
Hope these points will help you all to quickly revise the concept of JIT. Stay tuned as for more process under Operational Efficiency.
All the Best! 😎
Does the above image remind you of a famous game Luddo? Well, its not that, it's a Balanced Scorecard. What is its purpose you may ask? The reply would be that it is a strategic performance measurement model, which is developed to translate organization's mission and vision into actual actions.
The key factor to remember about Balanced scorecard is that it facilitates best practices analysis. The best practices analysis is a method of achieving a business function or process that is considered superior to all known methods. In simple words, a lesson learned from one area of business can be passed on to another area of business or between businesses.
Balanced Scorecard has 4 categories:
1)Financial: Measures Liquidity & Profitability. Tools used to measure liquidity are ratios such as working cap, current, cash flow and quick flow ratio. Profitability is measured by calculating Net profit, ROI, EPS, and market price.
2)Customer: This perspective mainly evolves around 3 points i.e. acquisition, retention, and Market share. For instance, monthly targets are established to acquire 50 new customers. Next step would be to retain the existing and new customers by satisfying them better than competitors. Finally, market share focuses on how to expand geographically and enjoy more revenues/profits.
3) Internal Business Process: From the perspective of internal processes the question should be asked what internal processes have actually added value to the organizations and what activities need to be carried out within these processes. It can be measured with yield, throughput, reduced cycle time, cost efficiency, order fulfillment, repairs, warranty etc.
4) Learning & Growth: An organization’s ability to learn and innovate highlight if an organization follows continuous improvement (KAIZEN). This perspective focuses on workers by concentrating on employee satisfaction, employee retention, and overall employee efficiency.
Balanced Scorecard is a frequently asked question in CMA examinations so I hope the above information helps you in revising. Additionally, the questions inscribed on the image above can help you remember what each perspective is about.
Now, lets exercise our brains by finding at least 2 advantages & disadvantages of Balanced Scorecard. Comment below what do you think are advantages/disadvantages of this method so that we can enjoy collaborative learning.
All the Best! 😎