Question

In responsibility accounting, unit managers are evaluated on:

Option 1: Costs they cannot control
Option 2: Costs they can control
Option 3: Uncontrollable costs
Option 4: Costs in decentralized units

Answer 1

In responsibility accounting, unit managers are evaluated on costs they can control, which typically refers to variable costs that are subject to managerial influence and decision-making. Option 2 is correct.

Step-by-step explanation:

In responsibility accounting, unit managers are typically evaluated on costs they can control. The fundamental idea is that holding managers accountable for what they can control leads to better performance and more efficient operations. For instance, they might be responsible for direct material costs or labor costs associated with their units. On the other hand, fixed costs or sunk costs, such as rent or the depreciation of capital equipment, tend to be out of their immediate control and do not necessarily influence their performance evaluation.

The evaluation of managers is often connected to how they manage variable costs, which can exhibit diminishing marginal returns, making the cost management essential in producing higher output levels. They are challenged to responsibly control these costs to ensure they meet the expectations set forth by the organization.