Page 949 - Accounting Principles (A Business Perspective)

25. Responsibility accounting: Segmental analysis

or shipping. Recently, large companies have tended to organize segments according to product lines such as an
electrical products division, shoe department, or food division.
A responsibility center is a segment of an organization for which a particular executive is responsible. There

are three types of responsibility centers—expense (or cost) centers, profit centers, and investment centers. In
designing a responsibility accounting system, management must examine the characteristics of each segment and
the extent of the responsible manager's authority. Care must be taken to ensure that the basis for evaluating the
performance of an expense center, profit center, or investment center matches the characteristics of the segment
and the authority of the segment's manager. The following sections of the chapter discuss the characteristics of each
of these centers and the appropriate bases for evaluating the performance of each type.

First Level
Macy's Corporation
President
Amount Over or
(Under)
Budget
Controllable This Year to This Year to
Expenses Month Date Month Date
President's office $ 11,000 $ 55,000 $ 1,000 $ 2,000
expense
Vice president of 128,720 700,000 6,000 8,000
operations
Vice president of 18,700 119,000 4,000 8,000
marketing
Vice president of 14,000 115,000 8,000 9,000
finance
Vice presidents' 29,000 145,000 -0- -0-
salaries
Total $ 201,420 $ 1,134,000 $ 19,000 $ 27,000
Second Level
Macy's Corporation
Vice President of Operations
Amount Over or
(Under)
Budget
Controllable This Year to This Year to
Expenses Month Date Month Date
Vice president's $ 2,840 $ 9,500 $ (500) $ (8,000)
office expense
Store manager 88,800 490,000 2,500 5,000
Purchasing 5,300 32,500 1,000 2,000
Receiving 4,700 33,000 3,000 9,000
Salaries of store 27,000 135,000 -0- -0-
managers and heads
of purchasing and
receiving
Total (include in $ 128,720 $ 700,000 $ 6,000 $ 8,000
report for next
higher level)
Fourth Level
Macy's Corporation
Manger, Men's Clothing Department

950