Following are the main roles or contribution of responsibility accounting:
* Decentralization
By dividing the total organization in smaller subunits, the organization becomes more manageable.
* Performance Evaluation
Responsibility accounting establishes a sound and fair system of performance evaluation of each manager and personnel. The performance of each responsibility center is measured and presented periodically on performance report.
* Motivation
Responsibility accounting emphasizes on the individual achievement-based performance evaluation. Therefore, the job becomes more challenging for the employees and motivates them to use their full potentiality in achieving the results.
* Transfer Pricing
Responsibility accounting divides the organization in different autonomous responsibility centers or subunits. In such circumstances, product or service of one division or unit can be transferred to another division or unit within the same organization charging a transfer price. This creates an inter-competitive environment to make each subunit of the organization more profitable and efficient.
Drop Or Continue Decision
If the organization is divided into subunits, it becomes possible to measure division wise or product wise profitability of the organization. If saving in costs exceeds the foregone revenues, the center can be discontinued.
