Page 945 - Accounting Principles (A Business Perspective)

25. Responsibility accounting: Segmental analysis

Exhibit 202: A corporate functional organization chart including four levels of management

To identify the items over which each manager has control, the lines of authority should follow a specified path.

For example, in Exhibit 202 we show that a department supervisor may report to a store manager, who reports to
the vice president of operations, who reports to the president. The president is ultimately responsible to
stockholders or their elected representatives, the board of directors. In a sense, the president is responsible for all
revenue and expense items of the company, since at the presidential level all items are controllable over some
period. The president often carries the title, Chief Executive Officer (CEO) and usually delegates authority to lower
level managers since one person cannot keep fully informed of the day-to-day operating details of all areas of the
business.
The manager's level in the organization also affects those items over which that manager has control. The
president is usually considered a first-level manager. Managers (usually vice presidents) who report directly to the

president are second-level managers. Notice on the organization chart in Exhibit 202 that individuals at a specific
management level are on a horizontal line across the chart. Not all managers at that level, however, necessarily have
equal authority and responsibility. The degree of a manager's authority varies from company to company.
While the president may delegate much decision-making power, some revenue and expense items remain
exclusively under the president's control. For example, in some companies, large capital (plant and equipment)
expenditures may be approved only by the president. Therefore, depreciation, property taxes, and other related
expenses should not be designated as a store manager's responsibility since these costs are not primarily under that

manager's control.
The controllability criterion is crucial to the content of performance reports for each manager. For example, at
the department supervisor level, perhaps only direct materials and direct labor cost control are appropriate for
measuring performance. A plant manager, however, has the authority to make decisions regarding many other

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