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Managerial Accounting and Controls: Cost Center

Managerial accounting supports decision making through planning and controlling operations. It plays a significant role in the growth of tourism in Southern Leyte, Philippines. Specifically for Limasawa Island, which marks the site of the first Catholic mass in the Philippines, managerial accounting can help private entities and local governments develop the island's tourism potential through financial guidance and marketing. By implementing development programs and recommending agreements for tourist attractions, facilities, and plans, managerial accounting ensures the proper management and controls needed for successful tourism growth that benefits the local community.

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240 views4 pages

Managerial Accounting and Controls: Cost Center

Managerial accounting supports decision making through planning and controlling operations. It plays a significant role in the growth of tourism in Southern Leyte, Philippines. Specifically for Limasawa Island, which marks the site of the first Catholic mass in the Philippines, managerial accounting can help private entities and local governments develop the island's tourism potential through financial guidance and marketing. By implementing development programs and recommending agreements for tourist attractions, facilities, and plans, managerial accounting ensures the proper management and controls needed for successful tourism growth that benefits the local community.

Uploaded by

jessica laran
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MANAGERIAL ACCOUNTING AND CONTROLS

1. Responsibility center is an object for which cost/revenue/capital


expenditures are specifically collected and analyzed. Each responsibility
center is usually managed and controlled by a separate manager. The entity
is often internally split into various types of responsibility centers for the
purposes of smooth management, controlling, and planning (budgeting).

Identify the different types of centers in responsibility accounting and give


SPECIFIC examples of transactions that are UNIQUE to the particular center
and fully discuss (25 pts).

 RESPONSIBILITY CENTERS are segments in which supervisors or


managers have responsibility for the performance of the center and the
authority to make decisions that affect the center. The following are the
different types of centers:

COST CENTER
Organizational segment in which a manager is held responsible
only for costs. In these types of responsibility centers, there is a direct
link between the costs incurred and the product or services produced.
This link must be recognized by managers and properly structured
within the responsibility accounting framework.

An example of a cost center is the custodial department of a


department store called Apparel World. On one hand, since the
custodial department is structured as a cost center, the goal of the
custodial department manager is to keep costs as low as possible,
since this is the basis by which the manager will be evaluated by
upper-level management. 

DISCRETIONARY COST CENTER


 A discretionary cost center is an organizational segment in
which a manager is held responsible for controllable costs when there
is not a well-defined relationship between the center’s costs and its
services or products. Examples include human resources and
accounting departments. Human resources departments often establish
policies that affect the entire organization. For instance, while a policy
requiring all workers to have annual safety training for fires, injuries,
and tornadoes is beneficial to the entire company, it is difficult to
evaluate the human resources department manager’s performance in
relation to impacting the products or services the company provides.
As you might expect, reviewing the financial performance of a
discretionary cost center is similar to that of the review of a cost
center.
INVESTMENT CENTER
Organizational segment in which a manager is accountable for
profits (revenues minus expenses) and the invested capital used by the
Segment. It is important for managers to continually invest in the
business. Managers must choose investments that improve the value
of the business by improving the customer experience, increasing
customer loyalty, and, ultimately, increasing the value of the
organization. A limitation of the centers explored so far—cost center,
discretionary cost center, revenue center, and profit center—is that
these structures do not account for the investments made by the
various responsibility center managers. The final responsibility center—
investment centers—takes into account and evaluates the investments
made by the responsibility center managers. The goal of the
investment center structure is to ensure that segment managers
choose investments that add value and help the organization achieve
its strategic goals.

PROFIT CENTER
A profit center is an organizational segment in which a manager
is responsible for both revenues and costs (such as a Starbucks store
location). Of the responsibility centers explored so far, a profit center
structure is the most complex because a manager must be well-versed
in techniques to increase revenues, decrease expenses, and thereby
increase profits while also meeting the strategic goals of the
organization.

REVENUE CENTER
Part of an organization in which management is evaluated based
on the ability to generate revenues; the manager’s primary control is
only revenues

Return On Investment (ROI)


Measure of the percentage of income generated by profits that
were invested in capital assets

Key Concepts and Summary

 A responsibility accounting structure helps management evaluate


the financial performance of the segments in the organization.
 Responsibility centers are segments within a responsibility
accounting structure.
 Five types of responsibility centers include cost centers,
discretionary cost centers, revenue centers, profit centers, and
investment centers.
 Cost centers are responsibility centers that focus only on
expenses.
 Discretionary cost centers are responsibility centers that focus
only on controllable expenses.
 Revenue centers are responsibility centers that focus on
revenues.
 Profit centers are responsibility centers that focus on revenues
and expenses.
 Investment centers are responsibility centers that consider the
investments made by the responsibility center.
 Return on investment is a particular type of investment center
structure that calculates a responsibility center’s profit percentage
relative to the center’s investment.
 Residual income is a particular type of investment center structure
that evaluates investments using a common cost of capital rate
among all responsibility centers.

2. Managerial Accounting is often referred to as management accounting.


The institute of Management Accountants describes management accounting
as “a profession that involves partnering in Management decision-making,
devising planning and performance management systems, providing expertise
in financial reporting and control to assist management in the formulation and
implementation of an organization strategy. “In short, managerial accounting
supports the decision making process through planning and controlling
operations.” Planning primarily occurs in the budgeting process. Controlling
occurs when managers compare actual performance with budgeted amounts
to identify differences and then act upon any differences that appear to be
significant.

Write a descriptive and exploratory analysis on the significance of managerial


accounting and the role that it plays on the growth of the tourism industry of
Southern Leyte in general and Limasawa in particular. (25 pts.)

The island of Limasawa is famous as it is believed to be the site of the


first mass in Philippine soil, officiated on Easter Sunday of March 31, 1521
Father Pedro de VAlderrama under the fleet of Ferdinand Magellan. Now, it
reached to 500 years after the first exploration and the island seems to be so
slow. If tourism will be left unattended by authorities, the economic potential
thereof could not be tapped for the enefir of everybody. To address this
dilemma, a local agency should be created to concentrate on developing the
tourism potential of the historic Limasawa Island in Southern Leyte. Focus on
tourism, a core group must implement a development program for the island
of Limasawa. If the local government could not make it possible to handle
the said project, they must assist the provate entities who are willing to
undertake the tourism project; this private entity may tackle to handle the
development of tourism attractions and recommend agreement for tourist
plans and facilities.
Through proper management and strict financial guidance that will be
imposed by private entities in coordination with the Local Government Unit,
the program will be successfully implemented with the guidance of brilliant
minds of managers who be task to handle the financial and marketing aspects
for tourism

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