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Departmental accounting reports often provide data used to evaluate a department’s performance Kenny Golladay Womens Jersey , but are they useful in assessing how well a department manager performs? Neither departmental income nor its contribution to overhead may be useful because many expenses can be outside a manager’s control. Instead, we often evaluate a manager’s performance using responsibility accounting reports that describe a department’s activities in terms of controllable costs. A cost is controllable if a manager has the power to determine or at least significantly affect the amount incurred. Uncontrollable costs are not within the manager’s control or influence.

• Controllable versus Direct Costs
Controllable costs are not always the same as direct costs. Direct costs are readily traced to a department, but the department manager might or might not control their amounts. For example, department managers often have little or no control over depreciation expense because they cannot affect the amount of equipment assigned to their departments. Also Teez Tabor Womens Jersey , department managers rarely control their own salaries. However, they can control or influence items such as the cost of supplies used in their department. When evaluating managers’ performances, we should use data reflecting their departments’ outputs along with their controllable costs and expenses. Distinguishing between controllable and uncontrollable costs depends on the particular manager and time period under analysis. For example, the cost of property insurance is usually not controllable at the department manager’s level but by the executive responsible for obtaining the company’s insurance coverage. Likewise Jarrad Davis Womens Jersey , this executive might not control costs resulting from insurance policies already in force. However, when a policy expires, this executive can renegotiate a replacement policy and then controls these costs. Therefore, all costs are controllable at some management level if the time period is sufficiently long. We must use good judgment in identifying controllable costs.

• Responsibility Accounting System
A responsibility accounting system uses the concept of controllable costs to assign managers the responsibility for costs and expenses under their control. Prior to each reporting period Kerryon Johnson Womens Jersey , a company prepares plans that identify costs and expenses under each manager’s control. These plans are called responsibility accounting budgets. To ensure the cooperation of managers and the reasonableness of budgets, managers should be involved in preparing their budgets. A responsibility accounting system also involves performance reports. A responsibility accounting performance report accumulates and reports costs and expenses that a manager is responsible for and their budgeted amounts. Management’s analysis of differences between budgeted amounts and actual costs and expenses often results in corrective or strategic managerial actions. Upper-level management uses performance reports to evaluate the effectiveness of lower-level managers in controlling costs and expenses and keeping them within budgeted amounts. A responsibility accounting system recognizes that control over costs and expenses belong to several levels of management.
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