| Management, cost and financial accounting all have | | | | facilitated by costing in these areas. The |
| a context. Their role is to transform financial (and | | | | accountant would also be concerned with the cost |
| sometimes non-financial) data into information for | | | | units or objects in these centres, since the cost |
| accounting users. Management accounting seeks | | | | unit is the basis for cost analysis in a cost centre. |
| to provide internal information users with data. | | | | Profit centre managers are responsible for costs |
| As such, a management accountant must know | | | | and revenues. Their performance is measured by |
| the information needs and requirements of | | | | the profit margin. Therefore, the management |
| managers and other internal users. The | | | | information that they require should enable them |
| classification of responsibility centres into cost, | | | | to develop an optimal balance between costs and |
| profit, revenue and investment centres assist | | | | revenue-particularly variable costs and revenue. |
| management accountant in understanding the | | | | The profit centre manager is likely to be |
| needs of the managers. | | | | concerned with the relationship between variable |
| The classification of responsibility centres is | | | | costs and revenues and analyses that help |
| important because each one has a specific | | | | monitor the profit margins of a product or unit. |
| jurisdiction. Cost centres (CC) are the fundamental | | | | Investment centres are profit centres with |
| area, since costs fall under the purview or profit | | | | additional responsibilities. As such, the investment |
| and investment centres as well. Revenue centres | | | | centre manager would be concerned with the |
| (CC) deal almost exclusively with sales and | | | | rate of return and valuation of non-current assets |
| revenue. Managers of profit and investment | | | | primarily. However, the I.C. is also responsible for |
| centres have additional responsibilities and | | | | costs and revenue, making all information that is |
| performance measures. As a result, the | | | | relevant in a profit centre relevant to the I.C. |
| information needs of the managers will differ | | | | Revenue centre managers are almost exclusively |
| according to the responsibility. | | | | concerned with sales and revenue. In light of that, |
| Since the users of management accounts are | | | | the manager is unlikely to need information on |
| managers, it is easy to perceive how it would | | | | cost behaviour. The R.C. manager is likely to be |
| affect how management accounts are produced. | | | | concerned with the viability of markets and |
| After all, such accounts are necessary for | | | | orders, pricing decisions and sales information |
| planning, control and decision-making. For profit | | | | from competitors. A source of information for |
| and investment centres, accountants must | | | | revenue centres might also include financial |
| consider the additional information requirements | | | | accounts of competitors. |
| and performance measures of management in | | | | Since accounting information should be relevant, it |
| order to provide relevant information. | | | | is important for management accountants to be |
| CCs refer to any project, unit, equipment or | | | | aware of the needs of different managers |
| department for which costs are determinable. As | | | | according to the responsibility centre that they |
| such, cost accounting techniques and methods are | | | | operate. Apart from being a premise to assess |
| very relevant to any centre that has a cost | | | | information needs, responsibility centres also |
| function. Budgets, forecasts and control would be | | | | enable cost classification in an organisation. |