Contents

Task 1..........................................................................................................................................................3

1.1. Classify the different types of cost..............................................................................................3

1.2. Calculate the unit cost and total job cost for Job 444 using job costing method:.............................4

Calculation of per unit cost..................................................................................................................4

Total Job Cost for job 444:..................................................................................................................4

1.3. Calculate the cost of Exquisite using appropriate techniques..........................................................5

a. Allocation and apportionment overheads:.................................................................................6

b. Reapportionment of the service department costs to the production departments:............9

c. Overhead Absorption rate:.........................................................................................................10

1.4. Analyze the cost of Exquisite:.........................................................................................................10

Task 2:......................................................................................................................................................12

2.1 Preparation and analysis of the cost report:..............................................................................12

2.2 Use of various performance indicators for potential improvements:........................................13

2.3 Ways to reduce costs, enhance value and quality.....................................................................13

Task 3:......................................................................................................................................................14

3.1. Purpose and nature of the budgeting process................................................................................14

Budget period:.......................................................................................................................................14

Planning, budgetary planning and operational planning.......................................................................14

3.2. Appropriate budgeting methods for the organization and its needs.........................................16

3.3. Preparation of budgets..............................................................................................................17

(A) Production Budget:.......................................................................................................................17

(B) Material Purchase Budget:..........................................................................................................17

3.4 Cash Budget:..............................................................................................................................18

Task 4:......................................................................................................................................................20
 4.1 Variance Analysis.......................................................................................................................20

4.2 Operating statement reconciling budgeted and actual results..................................................22

4.3 Responsibility Centre.................................................................................................................23

Bibliography...............................................................................................................................................25
Task 1

1.1. Classify the different types of cost

Types of costs

Cost accounting is a process in which all the cost associated to the products, production
and projects are measured and analyzed. Cost can be classified based on how frequent
they react to production. These types of costs with their examples are listed below:

Fixed cost

Fixed cost is one that don’t change irrespective of units a company produces and
remains fixed over a period of time fixed cost van be assets like building and equipment
e.g.: insurance, rent , depreciation etc.

Variable cost

Variable cost differ from the fixed cost as this cost increases as the output volume of the
company increases and decreases as the volume of the company decreases e.g. : raw
material ,energy use , labor cost, distribution cost etc.

Semi variable cost

A mixture of variable and fixed cost elements is called semi variable cost. This cost
remains fixed until a specific level of production after that it increases in direct
proportion with the units of production. Semi variable cost is also named as the semi
fixed cost.

E g: - monthly rental for a phone may be charged with call charges. Here the rental is
fixed as the call charges are variable
Marginal Costs – Marginal cost is the cost of producing an extra unit. If the total cost of
3 units is 1550, and the total cost of 4 units is 1900. The marginal cost of the 4th unit is
350.

Opportunity cost – Opportunity cost is the next best alternative foregone. If you invest
£1million in developing a cure for pancreatic cancer, the opportunity cost is that you
can’t use that money to invest in developing a cure for skin cancer.

1.2. Calculate the unit cost and total job cost for Job 444 using job costing
method:

Calculation of per unit cost

Calculation of per unit cost £

Direct material Cost (50 kg * £4 per kg) 200
Direct labour Cost ( 30 hours * £9 per hour) 270
PRIME COST 470
Variable Production Overheads (30 hours * £ 6 per hour) 180
Per Unit Cost 650

Total Job Cost for job 444:

Total Job Cost for job 444 £

Total Variable cost for 200 units ( 200 units * £ 650) 130,000
Fixed Production Overheads 80,000
Total Job Cost 210,000

Working 1: Overhead Absorption Rate

O.A.R = budgeted production overheads/ budgeted labor hours

O.A.R = £ 80,000/ £ 20000

 =£4

Fixed overhead cost: 4* 20,000 = £ 80,000

Job costing is a systematic process of calculating the direct material and labor cost for
each job. Basic purpose of job costing is to determine that the product pricing covers
the actual cost overhead cost and a profit is also earned. In job costing method cost can
be accumulated by batch or the job. Material, labor and other direct cost are calculated
at their actual values.

Cost per unit is calculated where company manufactures a large number of similar
products and this cost normally declines with the increase in the production level of the
company. While figuring out the total cost per unit, it is the mixture of the fixed cost and
variable cost. Variable cost includes the direct material cost, direct labor cost and
variable production overheads. Prime cost is the combination of the direct material cost
and direct labor cost means it refers to the direct production cost. Fixed cost are not
always same they can sometimes change unpredictably and sometimes on the regular
basis. Over heads for a particular division, process or product are commonly linked to
special allocation base. Fixed production overheads are observed on the basis of
different activity level theses basis could be machine hours direct labor cost, labor
hours, sometimes prime. Cost is also used but only when factory produces one type of
products. Here the budgeted labor hours are used to calculate the overhead absorption
rate. After calculating the cost per unit total cost of the job is calculated by multiply per
unit cost with the total output level of the company. Which is the total cost of any job or
batch. In the above data total cot calculate by using job costing method is 210,000.

1.3. Calculate the cost of Exquisite using appropriate techniques

Calculation of per unit cost £
Direct material Cost 8
Direct labour Cost ( 2 hours * £ 7.5 per hour) 15
Overheads:
Machine Shop X (0.8 machine hours * £ 5.44) 4.35
Machine Shop y (0.6 machine hours * £ 5.83) 3.50
Assembly (0.1 machine hours * £ 25.01) 2.50
Per Unit Cost 33.35

a. Allocation and apportionment overheads:

Machine Machine Assembl Maintenanc
Overhead Costs shop X shop Y y Stores e Total
Indirect wages and
supervision 100,000 99,500 92,500 10,000 60,000 362,000

Indirect Materials 100,000 100,000 40,000 4,000 9,000 253,000

Light and heating ( w-1) 10,000 5,000 15,000 15,000 5,000 50,000

Rent (w-2) 20,000 10,000 30,000 30,000 10,000 100,000

Insurance of machinery
(w-3) 7,947 4,967 993 497 596 15,000
Depreciation of
Machinery (w-4) 79,470 49,669 9,934 4,967 5,960 150,000
Insurance of Buildings
(w-5) 5,000 2,500 7,500 7,500 2,500 25,000
Salaries of works
management ( w-6) 24,000 16,000 24,000 8,000 8,000 80,000
£ £ £ £ £
TOTAL 346,417 287,636 219,927 79,964 £ 101,056 1,035,000

W -1: Light and Heat

Overheads related to light and heat are apportioned by using Area occupied basis
which are calculated as follows:
Departments Basis of Apportionment Overhead Apportioned
Machine Shop x 10,000 ͫ ²/50,000 ͫ ² x £ 10,000
 50,000
Machine Shop Y 5,000 ͫ ²/50,000 ͫ ² x £ 5,000
50,000
Assembly 15,000 ͫ ²/50,000 ͫ ² x £ 15,000
50,000
Stores 15,000 ͫ ²/50,000 ͫ ² x £ 15,000
50,000
Maintenance 5,000 ͫ ²/50,000 ͫ ² x £ 5,000
50,000
Total £ 50,000

W-2: Rent

Overheads related to rent are apportioned by using Area occupied basis which are
calculated as follows:
Departments Basis of Apportionment Overhead Apportioned
Machine Shop x 10,000 ͫ ²/50,000 ͫ ² x £ 20,000
100,000
Machine Shop Y 5,000 ͫ ²/50,000 ͫ ² x £ 10,000
100,000
Assembly 15,000 ͫ ²/50,000 ͫ ² x £ 30,000
100,000
Stores 15,000 ͫ ²/50,000 ͫ ² x £ 30,000
100,000
Maintenance 5,000 ͫ ²/50,000 ͫ ² x £ 10,000
100,000
Total £ 100,000

W-3: Insurance and Machinery

Overheads related to insurance of machinery are apportioned by using book value of
machinery basis which are calculated as follows:
Departments Basis of Apportionment Overhead Apportioned
Machine Shop x £ 800,000 / £ 1,510,000 x £ 7,947
15,000
Machine Shop Y £ 500,000 / £ 1,510,000 x £ 4,967
15,000
Assembly £ 100,000 / £ 1,510,000 x £ 993
15,000
Stores £ 50,000 / £ 1,510,000 x £ 497
15,000
Maintenance £ 60,000 / £ 1,510,000 x £ 596
15,000
Total £ 15,000

W-4: Depreciation of Machinery

Overheads related to depreciation of machinery are apportioned by using book value of

machinery basis which are calculated as follows:
Departments Basis of Apportionment Overhead Apportioned
Machine Shop x £ 800,000 / £ 1,510,000 x £ 79,470
150,000
Machine Shop Y £ 500,000 / £ 1,510,000 x £ 49,669
150,000
Assembly £ 100,000 / £ 1,510,000 x £ 9,934
150,000
Stores £ 50,000 / £ 1,510,000 x £ 4,967
150,000
Maintenance £ 60,000 / £ 1,510,000 x £ 5,960
150,000
Total £ 150,000
W-5: Insurance of Building

Overheads related to insurance of building are apportioned by using Area occupied

basis which are calculated as follows:
Departments Basis of Apportionment Overhead Apportioned
Machine Shop x 10,000 ͫ ²/50,000 ͫ ² x £ 5,000
25,000
Machine Shop Y 5,000 ͫ ²/50,000 ͫ ² x £ 2,500
25,000
Assembly 15,000 ͫ ²/50,000 ͫ ² x £ 7,500
25,000
Stores 15,000 ͫ ²/50,000 ͫ ² x £ 7,500
25,000
Maintenance 5,000 ͫ ²/50,000 ͫ ² x £ 2,500
25,000
Total £ 25,000

W-6: Salaries of Works Management

Overheads related to salaries of work management are apportioned by using number of

employee’s basis which are calculated as follows:
Departments Basis of Apportionment Overhead Apportioned
Machine Shop x 30/100 x 80,000 £ 24,000
Machine Shop Y 20/100 x 80,000 £ 16,000
Assembly 30/100 x 80,000 £ 24,000
Stores 10/100 x 80,000 £ 8,000
Maintenance 10/100 x 80,000 £ 8,000
Total £ 80,000
 b. Reapportionment of the service department costs to the production
departments:
Machin
Machine e shop Maintenan
Overhead Costs shop X Y Assembly Stores ce Total
£
£ £ £ £ £ 1,035,00
TOTAL 346,417 287,636 219,927 79,964 101,056 0
Maintenance £ £ £
(48%:32%:20%) 48,507 32,338 20,211 - (101,056)
£
£ £ £ £ 1,035,00
Subtotal 394,924 319,974 240,138 79,964 0
Store
(50%:37.5%:12.5 £ £ £ (79,96
%) 39,982 29,987 9,996 4)
£
£ £ £ 1,035,00
434,906 349,960 250,134 - - 0
W-1 Calculation of percentage for re-apportionment of maintenance overheads:

Machine Shop X = 12,000 hours / 25,000 hours *100 = 48%

Machine Shop Y = 8,000 hours / 25,000 hours *100 = 32%

Assembly = 5,000 hours / 25,000 hours *100 = 20%

W-2 Calculation of percentage for re-apportionment of stores overheads:

Machine Shop X = £ 400,000 / £ 800,000*100 = 50%

Machine Shop Y = £ 300,000 / £ 800,000*100 = 37.5%

Assembly = £ 100,000 / £ 800,000*100 = 12.5%

 c. Overhead Absorption rate:

Departments Overhead Absorption

Rate (OAR)
Machine Shop x £ 434,906/80,000 hours £ 5.44

Machine Shop Y £ 349,960/60,000 hours £ 5.83

Assembly £ 250,134/10,000 hours £ 25.01

1.4. Analyze the cost of Exquisite:

Calculation of per unit cost £

Direct material Cost 8
Direct labour Cost ( 2 hours * £ 7.5 per hour) 15
Overheads:
Machine Shop X (2 labour hours * £ 2.17) 4.34
Machine Shop y (1.5 labour hours * £ 2.33) 3.50
Assembly (1 labour hours * £ 1.25) 1.25
Per Unit Cost 32.09

Re-calculation of Overhead absorption rate by using direct labour hours:

Departments Overhead Absorption

Rate (OAR)
Machine Shop x £ 434,906/200,000 hours £ 2.17
Machine Shop Y £ 349,960/150,000 hours £ 2.33
Assembly £ 250,134/200,000 hours £ 1.25

The cost of exquisite is £ 33.35 per unit which is calculated by absorbing overheads by
using machine hours which is higher than the cost which is calculated under the direct
labour hours. By using direct labour hours for absorbing overheads, the cost per unit of
exquisite is £ 32.09 which is £ 1.26 less. The financial director of Jeffrey & sons ltd was
right because the cost which is calculated under machine hours OAR method is higher
than direct labour hours OAR method and in total it can make a loss of £ 126,000 (£
1.26 * 100,000 units) to the company if company choose machines hours OAR method
to calculate the per unit cost of Exquisite.
Task 2:

2.1 Preparation and analysis of the cost report:

Budgeted cost Actual cost Variance

2000 units 1900 units
Material £24,000 22,800 1,200
Labour £18,000 19,000 (1,000)
Fixed overheads £15,000 15,000 0
Electricity £8,000 7,125 875
Maintenance £5,000 4,000 1,000
Total £70,000 67,925 2,075

Working:

W-1: Material cost:

Actual units produced = 1,900

Material cost per unit = £12

Total cost =£ 22,800

W-2: Labour cost:

Actual units produced = 1,900

Labour rate per unit = £10

Total cost of Labour = £19,000

W-3: Cost of electricity:

Differential cost = £3,000

Difference in units = 800

Differential cost per unit = £3.75

Total cost of units produced = 1900* £3.75 = £7,125

W-4: Maintenance cost:

Cost of 500 units = £ 1,000

Cost of additional 1,400 units = £ 3,000

Total maintenance cost = £ 4,000

Commenting on Variance Analysis:

Material cost has favourable variance as the actual units produced are less than
budgeted due which the variance has resulted. Labour rate for per unit was changed
and also the number of units due to which actual cost exceeded as compared to
budgeted. Electricity is semi variable cost so the change has occurred while
maintenance cost was stepped cost which increases when the threshold level is
crossed.

2.2 Use of various performance indicators for potential improvements:

The process in which review of the system is carry out on continuous basis in order to
find out those factors which can reduces the cost incur is called as Kaizen costing. This
system is used by the company during the production of particular product. Employees
of the company also gave opportunity to recommend any attractive aspects for the
reduction of the cost without compromising on the current quality of the products.
Reduction of cost will be considered as productive if it does not affect the reputation of
products among customers. In Kaizen costing Technique Company’s management
make regular developments. The direction of Kaizen costing changes as targets
change. (CIMA, n.d.)
2.3 Ways to reduce costs, enhance value and quality
Following are the different way to reduce the cost and increase the quality and value:

 Product profitability. The process of product profitability begins from reducing the
related cost such as marketing, services and delivery along with that getting the
realistic explanation regarding to the customer and market, after recognition the
target providing the right value mix.
 Benchmarking/process improvement. This is concerned with the right level of
insight into process costs, and recognize the process of improvement and
consider the usual approach to drive down the real cost per unit. Moreover,
benchmark process of improvement is relative improvisation of knowledge,
practice and process (Jerome Patterson, n.d.)

Task 3:

3.1. Purpose and nature of the budgeting process

A budget is a plan which is prepared quantitatively for operating activities of the
business for specific time period. Quantification of the plan is very important because
theoretical budget cannot give direction about the outcomes of the plan. For example if
budget is prepared as “it is the plan of the company to develop as much products as
company can sell” in this example it is not clear that how much the company will earn by
implementing plan practically.
The budgets without including quantitative data will not help the administration of the
company to make efficient plans and control of the operation of the company.
Budgets can be modifies as below:
£ 60,000’ is the value of “Budgeted revenue expenditure” of printing department and
4,700 units’ is the budgeted production.
A quantification budget is a set target for the purpose of plan.
A quantification budget can be helpful for the controlling purpose (Hasan, n.d.).
Budget period:

Different budgets are prepared for different time period and it has been observed in the
given case. The budget is prepared in the way as first budget is prepared for 12 months’
time period and then second budget is started to prepared quarterly. The time period for
which the budget is prepared is called as budget period. In normal circumstance, the
budget is prepared for 12 months’ time period. There are different factors on the basis
of which the time for budget is selected. The nature of the operating activities of the
company and the kind of expenditure which is taken into consideration are some of
those important factors. Every budget prepared by the management of the company
can be further divided into sub divisions.

Planning, budgetary planning and operational planning

There are basically three kinds of planning like Strategic planning, budgetary planning
and operational planning. These three types are different from each other on the basis
of time period. The basic time periods on which the planning depends are short,
medium and long term. It is the fact that if short term planning is beneficial for one
company then it may not suitable for other company. The section of the planning
depends on the level and nature of the operation of the company (Wiley, n.d.)

Strategic planning

In order to achieve main goals of the company, the management of the company
required to prepare long term plans so in this way preparation of the long term planning
for future operating activities of the company is called as strategic planning. It is also
called as “corporate planning” or “long-range planning”.

Budgetary planning

The planning by the management of the company on the basis of the short term to
medium term is called as budgetary planning. Budgetary planning is carrying out
according to the requirements of main strategic plan of the company. The annual
budget of the company is the initial step for the achievement of the long term objectives
of the company (Wiley, n.d.)

Operational planning

Operational planning which is also known as tactical planning. In order to control all the
day to day operations of the company, the management of company makes plans for
short term which are called as operational planning. Management makes operational
planning for efficient use of the resources within the given framework. Operational
planning is also considering as the initial step for the achievement of the main
objectives of the company (Wiley, n.d.)

Without the use of plan for controlling the activities, it is difficult to realize the outcome of
any activity of planning.

3.2. Appropriate budgeting methods for the organization and its needs.

The development of the budget and its selection according to the needs of the company
can be finding by following three important approaches.

Top down: in this type of approach the key or top management personnel formulate the
budget and implemented on the employees working at lower level of hierarchy. Top
down approach of the budget give the picture of thinking and plans of the key
management of the company regarding the performance of the company (Johnson,
n.d.)

Bottom up: in this type of approach of budget, the budget is prepared by the
management personnel who are working at the lower level of hierarchy in the company.
Managers at middle level and supervisors also formulate the budget which is then sent
to the top level employees for approval of the budget. This type of approach is more
productive then top down approach because employees and departmental managers
are directly linked with the operation of the company.
Zero-based budgeting: in this type of approach budget is prepared by every manager
on the basis of estimates for a particular time period. It is called as zero based budgets
because the budget is prepared at start of any activity. The manager’s overview all the
expanses which can occur for particular activity in order to formulate attractive budget
for their department (Johnson, n.d.)

It is observed that all the approaches have some benefits and some drawbacks, but
bottom up approach is consider as better in comparison to other budgetary approaches.
3.3. Preparation of budgets

(A) Production Budget:

July Aug Sep
Budgeted sales as per budget 105,000 90,000 105,000
Desired finished inventory 13,500 15,750 16,500

Total needs 118,500 105,750 121,500

Less: opening stock - 11,000 - 13,500 - 15,750

Units to be produced 107,500 92,250 105,750

(B) Material Purchase Budget:

July August September

Material budget

Units to be produced
107,500 92,250 105,750

Material per unit

2 2 2

215,000 184,500 211,500

Desired closing inventory 23,063 26,438 27,125

238,063 210,938 238,625

Less: opening inventory 52,000 23,063 26,438

Material to be purchased
 186,063 187,875 212,187

Per kg price of material 1.75 1.75 1.75

325,609 328,780 371,327

3.4 Cash Budget:

Septembe Novembe
July August r October r
Op. Cash Balance 16,000 (8,250) (8,500) (73,250) (134,500)
Budgeted Cash
Sales
Previous Month (10%) 85500 99000 94500 81000 94500
Previous Month (25%) 247500 236250 202500 236250 247500
Current Month (60%) 567000 486000 567000 594000 540000
916,000 813,000 855,500 838,000 747,500
Less:
Direct Material 367,500 315,000 367,500 385,000 350,000
Direct Labour 315,000 270,000 315,000 330,000 300,000
Variable Overheads 63,000 54000 63000 66000 60000
Previous VOH 44,000 42,000 36,000 42,000 44,000
FOH 87,500 100,000 100,000 100,000 100,000
Bad Debts (5%) 47,250 40,500 47,250 49,500 45,000

Total Disbursement 924,250 821,500 928,750 972,500 899,000

Cash Surplus /
Deficit (8,250) (8,500) (73,250) (134,500) (151,500)
Working: 1 Material

Total Material
Direct Material Units Per Unit Rate Cost
July 105000 3.5 367500
Aug 90000 3.5 315000
Sep 105000 3.5 367500
Oct 110000 3.5 385000
Nov 100000 3.5 350000
Working: 2 Labor

Months Units Per Unit Rate Total Labor Cost

July 105000 3 315000
Aug 90000 3 270000
Sep 105000 3 315000
Oct 110000 3 330000
Nov 100000 3 300000

Working: 3 VOH

July 105000 1 105000 63000

Aug 90000 1 90000 96000
Sep 105000 1 105000 99000
Oct 110000 1 110000 108000
Nov 100000 1 100000 104000

Working: 4 FOH

July 100000 12500 87500

Aug 100000 12500 100000
Sep 100000 12500 100000
Oct 100000 12500 100000
Nov 100000 12500 100000
Task 4:

4.1 Variance Analysis

Formulas:

Sales revenue variance = (Actual price - Standard price) * Actual units sold

= {(13820/3500) – 4) * 3500

= 180 Adverse

Adverse sales revenue shows that Jeffrey and Son’s has failed to sale the product at
the standard price that was budgeted.

Jeffrey and Son’s should focus on the selling price so that it can yield high profits.

Sales volume variance = (Actual units sold – budgeted units to be sold) *

standard profit per unit

= (3500 – 4000) * 1.04

= 520 Adverse

Adverse sales quantity has become the reason for the adverse sales volume variance.
Maximum number units should be sold which turn the entire figure.

Material price variance = (Actual price - standard price) * Actual quantity

= {(3420/1425) - 2.4} * 1425

=0

Material price has no variance as actual and standard prices are same which resulted in
the nil variance.

Material usage variance = (Actual quantity – standard quantity) * Standard price

 = (1425 – 1400) * 2.4

= 60 Adverse

Adverse variance of material usage can be resulted because of high purchase cost in
the Jeffrey and son’s. Jeffrey and Son’s should focus to purchase material in bulk so
that cost of purchase can be reduced.

Labour rate variance = (Actual rate – standard rate) * Actual quantity

= {(2690/345) – 8) * 345

= 70 Favorable

Labour rate has favorable variance as actual rate paid to labour is lower than the
budgeted. Jeffrey and Son’s has successfully controlled the labour cost.

Labour efficiency variance = (Actual hours – standard hours) * standard rate

= (345 – 350) * 8

= 40 Favorable

Labour has shown the efficiency because the actual hours taken as compared to
standard hours for the work to be done. Skilled labour has reduced the idol time which
resulted in favourable figure.

Fixed overhead spending variance = Actual fixed overhead – Budgeted fixed

overhead

= 4900 – 4800

= 100 Adverse

Actual fixed overheads are higher than budgeted which resulted in adverse variance
which is point of consideration for the Jeffrey and Son’s.
Fixed overhead volume variance = (Actual rate – budgeted rate) * Fixed overhead
absorption rate

= (4200-4800)

= 600 Adverse

Adverse variance resulted as the labour hours budgeted are more than the work
performed. Jeffrey and Son’s should utilize its workers to get better and positive results.

4.2 Operating statement reconciling budgeted and actual results

Budgeted profit 4160
Sales volume variance -520
(500*1.04)
Standard profit from actual sales 3640
(3500*1.04)
(F) (A)
Sales price -180
Material price 0
Material usage -60
Labour rate 70
Labour efficiency 40
Fixed overhead expenditure -100
Fixed overhead volume -600
110 -940
-830
Actual Profit 2810

4.3 Responsibility Centre

To,

The Management

Jaffer & Sons Ltd.

Subject: Responsibility Centre

Dear Sir,

Responsibility center

A responsibility center is that part of the company which has to perform some specific
task. This segment of the company contains specific aims set by them, having its own
employees, self-formulated strategies, methodologies, and financial reports. There is
different responsibility of this type of center like to generate revenue, to expanse out
fund available for the individual. This option gives the authority to the senior employees
who have managerial responsibilities to control and trace back all the financial aspects
to particular workers of the company. The manager of the responsibility center is
responsible to calculate the bonuses for the employees.

Types of Responsibility Centre:

There are four different types of responsibility center.

Revenue Centre: The people involved in the sale of the products to generate revenue
for the company are called as revenue center.

Cost Centre: The group of people who have the responsibility to control the cost of the
company (Agarwal, n.d.).

Profit Centre: That group of people who have the responsibility to tackle both revenue
generation and incurring expanses. For example a manager is responsible for product
line.

Investment Centre: The group of people who are responsible for both profitability and
return on the investment invested by the people for the operation of the company or
business. Example of investment center is Subsidy Company in which the president is
responsible (Agarwal, n.d.).

It is very important for the company to have an at least one responsibility center
because it can enhance the productivity of the company. In the context of the
accounting, it is very important to issue financial report to each reasonability center to
enable the manager to evaluate different aspects for which they are responsible. There
may be possible that reports issued to managers are in large number. Multiple
responsibility centers require a developed structure in the company to enable the
managers to tackle all the expected results. (Accounting tools, n.d.)
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