Tma 1

Question 1
a) Decentralised organisation where decision authority is delegated to the lower levels of the organisation creates the need of control in the form of the different types of responsibility centres.
Responsibility centres are aspects of operations for which a particular manager is responsible. The most common types of responsibility centres are:
Cost Centre: where the manager is able to influence and control costs, but not revenues. This is done by comparing the cost of individual items against budgets via budget variance reports; also cost budgets achieved will measure the performance of the manager.
Revenue Centre: where the manager is able to influence revenue earned and will be evaluated on the basis of this. This applies to sales operations and done via sales targets and budgets against which is performance is measured.
Profit Centre: the manager is able to influence both costs and revenues, but not necessarily investments. This is done via information on both costs and revenues.
Investment Centre: this applies at an even higher level, where the manager is also able to make investment decisions as well as being responsible for costs, revenues and profit in his area of operations.

The concept of “Responsibility Centres” is important for management accountants as they need to understand the structure and the information needs of their managers.
Examples of accounting information provided to:
Cost Centres: cost budgets and cost charge mechanisms and regular analyses and comparisons of budgets versus performance.
Revenue Centre: sales budgets and targets, and regular analyses of revenues achieved versus targets.
Profit Centre: information about both revenues and costs and resulting profit broken down by products.
Investment Centre: all the information above relating to profit, and also analysis of Return on Sales, return on Investment, plus appraisals of potential investments and levels of investment (Working Capital info).

b) The...