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Business LibreTexts

9: Responsibility Accounting and Decentralization

  • Page ID
    5240
  • In this chapter, you will learn the difference between centralized and decentralized management and how that relates to decision-making. You will learn about responsibility accounting and the type of decision-making authority that may be granted through different responsibility centers. Finally, you will learn how certain types of decisions have differing effects, depending on the type of responsibility center.

    • 9.0: Prelude to Responsibility Accounting and Decentralization
      After several years of research and planning, Lauren opens her food truck and finds instant success. She is so busy that she decides to recruit several others to join her in her food truck business. While this is an exciting next step, she has some questions about expanding the food truck concept. In particular, she wants to know if she can grow the business while maintaining the level of quality in her food that has led to her success.
    • 9.1: Differentiate between Centralized and Decentralized Management
      All businesses start with an idea. After putting the idea into action and forming the business, measuring the performance of the business is a crucial next step for the business owners. As the business begins operations, it is fairly easy for the entrepreneur to measure the performance because the owner is heavily involved in the daily activities and decisions of the business. As the business grows, it becomes more complicated to measure the performance of the organization.
    • 9.2: Describe How Decision-Making Differs between Centralized and Decentralized Environments
      Larger businesses use segments, uniquely identifiable components of the business. A company often creates them because of the specific activities undertaken within a particular portion of the business. Segments are often categorized within the organization based on the services provided (i.e., departments), products produced, or even by geographic region. The purpose of identifying distinguishable segments within an organization is to provide efficiency in decision-making and performance.
    • 9.3: Describe the Types of Responsibility Centers
      Responsibility accounting is a basic component of accounting systems for many companies as their performance measurement process becomes more complex. The process involves assigning the responsibility of accounting for particular segments of the company to a specific individual or group. These segments are often structured as responsibility centers in which designated supervisors or managers will have both the responsibility for the performance of the center and the authority to make decisions.
    • 9.4: Describe the Effects of Various Decisions on Performance Evaluation of Responsibility Centers
      Organizations incur various types of costs using decentralization and responsibility accounting, and they need to determine how the costs relate to particular segments of the organization within the responsibility accounting framework. One way to categorize costs is based on the level of autonomy the organization (or responsibility center manager) has over the costs. Controllable costs are costs that a company or manager can influence.
    • 9.5: Summary and Key Terms
    • 9.E: Responsibility Accounting and Decentralization (Exercises)