Final answer:
Responsibility Accounting is the accounting system that includes the creation of Cost/Profit centres as part of full/absorption costing, facilitating performance measurement across an organization. (Option C).
Step-by-step explanation:
In accounting, the system that involves dividing an organization into Cost/Profit centres as part of full/absorption costing is known as Responsibility Accounting. This system assigns responsibility to division managers and measures performance by comparing the actual profit of each centre to planned or budgeted profit. Responsibility accounting facilitates accountability and performance measurement throughout an organization.
Accounting profit is an important concept, indicating total revenues minus explicit costs, including depreciation. Average profit, which is the profit divided by the quantity of output, serves as a profit margin indication and is a useful measure of profitability within responsibility centres. Average total cost, another vital term, signifies the total cost divided by the quantity of output, helping firms to understand their cost structures.
Identifying economies of scale and calculating average costs, such as average variable cost, are necessary steps for responsibility centres to assess their performance and contribution to the firm's overall profitability. The concepts of diseconomies of scale, diminishing marginal productivity, and economic profit are also critical as they influence decision-making and the financial health of each responsibility centre. (Option C).