Part One
Responsibility accounting refers to collecting, summarizing, and reporting accounting information or data related to managerial responsibilities. The main principle requires the evaluation and performance of every manager based on factors such as expenses and revenues.
Factors affecting responsibility accounting
Management decentralization
Allocation of costs and income centers
Reporting
Reward system
Allocating reality and estimation (Enahoro, 2019)
The accounting reports should be prepared as soon as possible, possibly within three months at the end of the performance measure.
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Accounting centers include
Cost centers which take care of accounting costs
Revenue centers which cater to revenues in the firm
Profit centers which look at revenues and profits in the company (Safa, 2012)
Profit centers include men clothing and toy departments
Costs centers include research and manufacturing departments
A) reasons for limiting cost centers
They are hard to monitors – managers find it hard to keep track of cost activities
Has negative impacts on other departments within the organization
It makes it hard to control profits in the firm
b) Methods of reducing cost center include
merging departments
making sure that costs centers are situated within the firm
working towards lower costs
Decentralization in an organization disperses decision making among people in the company. A more decentralized company creates an investment center that applies to different sectors.
Advantages of decentralization include
Increased employee motivation
Ease of decision making
Increases diversification
Leads to development of junior management
-Direct costs can be traced back to specific values objects, while indirect costs cannot be traced.
-Direct costs tend to be more variable, while indirect costs are either fixed or periodic.
The indirect costs for depreciation do not disappear when a firm's segment is eliminated. Instead, the costs appear in the remaining segments of the firm. If a segment of an organization is eliminated, the direct costs will also be eliminated since they can be traced back to specific costs.
Part Two
Nike Company Financial statement Assumptions
The company Nike operates in different regions around the world. It has got direct operations that enable the brand to be managed through geographic operating segments (Document, n.d). The operating segments include marketing, licensing, design, and sales of apparel, accessories, and casual sneakers. Besides that, it has a global brand division that enables the Nike brand to be presented in line with the company's management decisions. The global brand division is designed to ensure that the Nike brand has the position to license businesses that are not within the geographic operating segments, thereby leading to the creation of overhead expenses on operations. This assumption enables a central managed product design and creation that is managed centrally by the brand Nike. This cost management incorporates all the direct global digital enterprises as well as operation technology.
Nike measures its primary financial by evaluating the operational segments' performance (Document, n.d). The critical item used for evaluation is the earnings before interest and taxes that includes the net income before the interest expense and net income taxes, as shown in the consolidated income statement.
As per the company's central management strategy through the Nike brand, the cost of sales and inventories from each operating geographical segment indicates the standard rates that are utilized in recording nonfunctional currency in line with the functional currency for the organization (Document, n.d). Where there is a difference between the actual market rates and standard foreign currency rates within the organization, then a foreign currency hedge loss or gain will be generated centrally by the company to manage the risk brought by foreign exchange risk through its management program.
References
Document (n.d.). Retrieved June 28, 2020, from https://www.sec.gov/Archives/edgar/data/320187/000032018719000051/nke-531201910k.htm
Enahoro, J. A. (2019). Determinant Controllability of Responsibility Accounting in Profit Planning. Canadian Scial Science. Vol 6 , 11-20.
Safa, M. (2012). Examining the roles of responsibility accounting in organizational structure. American Academy & Scholarly Journal. Vol 4, Iss 5 , 1-6.
