Internal structures and responsibility centres

Accounting Ahead | Original study resource | accountingahead.com.au

Internal structures and responsibility

centres

MODULE 1 | PART D.3 | STUDENT COMPANION

A responsibility accounting system matches the organisation's structure. It collects revenues and costs for

each responsibility centre and measures each centre's performance, so managers are accountable for what they

control.

Cost centre

Accountable for controlling and reducing costs

Tradewise: distribution centre - cost per order dispatched

Revenue centre

Accountable for increasing revenue

Tradewise: online sales team - sales against target

Profit centre

Accountable for costs and revenues together

Tradewise: each store - store profit

Investment centre

Costs, revenues and investment decisions; the most

autonomous

Tradewise: regional division - return on investment

Hold each manager accountable for what they can actually control

Why structures have changed

Change What it means Management accounting work

Flatter hierarchies Fewer middle managers; information technology

replaces some of their work; decisions pushed

down (empowerment)

Train and support line managers;

skilled staff needed

Offshoring and

outsourcing

Work moves to own overseas subsidiaries or to

other organisations; non-core activities

outsourced

Make-or-buy and location decisions;

controls and performance measures

afterwards

Virtual offices and

global teams

Best people anywhere; work around the clock;

lower-cost locations; but language, culture and

supervision issues

Planning, budgeting and

performance reporting for teams

spread over many time zones and

cultures

Joint ventures and

alliances

Partners give access to new markets, products or

technologies; faster, cheaper, less risky

Costings, investment analysis and

performance reporting

STRATEGIC MANAGEMENT ACCOUNTING | M1 PART D.3 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Offshoring versus outsourcing

Offshoring

Activities move to the organisation's own subsidiary in

another country

The work is still done internally, just somewhere cheaper

Example: Tradewise moves payroll to its own office in

Manila

Outsourcing

Another organisation is paid to do work previously done

internally

The provider may be local or overseas

Example: Tradewise hands payroll to a specialist firm in

Brisbane

Franchising outsources the whole business model

Case notes

McDonald's (franchising): at the end of 2024, about 95% of its 43,477 restaurants worldwide were franchised

(41,432 franchised; 2,045 company-operated).

Starbucks and PepsiCo (alliance): in 1994 the two companies formed the North American Coffee Partnership

to make ready-to-drink coffee. Starbucks brought the brand and coffee expertise; PepsiCo brought bottling and

distribution. Bottled Frappuccino went on sale in 1996 and by 1999 reached about 200,000 supermarkets,

convenience stores and other outlets in the United States and Canada. Combining resources made both more

valuable: leverage.

Sources: McDonald's Corporation Form 10-K for 2024; Starbucks Corporation Form 10-K filings for fiscal 1997-1999.

What a modern management report covers

External economy

Interest rates, GDP, exchange

rates

Customers

Satisfaction and behaviour

Commodity prices

Changes in key input prices

Competitors

Cost structures, pricing, likely

responses

Industry

Life cycle and business cycle

analysis

Regulation

Impact of current or potential

changes

Projects

Business cases, approvals,

post-implementation reviews

Non-financial

performance

Throughput, emissions, waste,

employee engagement

Reports now arrive in days or hours, and the job is analysing and interpreting, not just producing numbers

STRATEGIC MANAGEMENT ACCOUNTING | M1 PART D.3 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Practice questions

MODULE 1 | PART D.3 | TRY THESE BEFORE THE WORKED ANSWERS

Question 1 - Classify the responsibility centre

Manager Centre type A fair performance measure

(a) Manager of a hospital's laundry, which serves only

internal wards

(b) Head of a software company's sales team, with no

say over prices or costs

(c) Manager of one restaurant in a chain, responsible for

menu sales and staffing

(d) Chief executive of a subsidiary who can decide to

build a new factory

(e) Manager of a call centre that answers customer

queries

(f) Manager of a franchise region who sets local prices

and controls costs

Question 2 - Offshoring, outsourcing or neither?

Move Answer

(a) A bank moves its call centre to its own subsidiary in the Philippines

(b) A university pays a cleaning company to clean its buildings

(c) A manufacturer pays a firm in Vietnam to assemble its products

(d) A retailer moves its accounts team from Sydney to its own Melbourne office

STRATEGIC MANAGEMENT ACCOUNTING | M1 PART D.3 | STUDENT COMPANION

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Question 3 - Outsourcing customer service

An online retailer is thinking about outsourcing its customer service to a specialist provider. Identify two risks to

the customer experience, and suggest a contract term or control that would manage each one.

STRATEGIC MANAGEMENT ACCOUNTING | M1 PART D.3 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Worked answers

MODULE 1 | PART D.3 | WORKED ANSWERS - ATTEMPT THE QUESTIONS FIRST

Question 1 - Classify the responsibility centre

Manager Centre type Fair measure

(a) Hospital laundry Cost centre Cost per kilogram processed, quality

standards met

(b) Sales team Revenue centre Sales against target, new customers won

(c) Restaurant manager Profit centre Restaurant profit, margin

(d) Subsidiary chief executive Investment centre Return on investment

(e) Call centre Cost centre Cost per call, plus service quality

(resolution rate)

(f) Franchise region Profit centre Regional profit

Question 2 - Offshoring, outsourcing or neither?

Move Answer

(a) Own subsidiary in the Philippines Offshoring

(b) Cleaning company Outsourcing (local)

(c) Firm in Vietnam Outsourcing (overseas)

(d) Sydney to own Melbourne office Neither: a domestic relocation within the

organisation

Question 3 - Outsourcing customer service

Risk 1 - service quality falls: the provider's staff know less about the products and may rush calls. Control:

service-level terms (answer times, first-contact resolution, customer satisfaction scores) with regular reporting,

call sampling, and penalties or exit rights if targets are missed.

Risk 2 - customer data is exposed: the provider handles names, addresses and order histories. Control:

privacy and security clauses, restricted system access, breach-notification duties and the right to audit the

provider.

Other acceptable risks include losing customer insight (control: monthly complaint-theme reports) and

dependence on one provider (control: transition and step-in rights).

STRATEGIC MANAGEMENT ACCOUNTING | M1 PART D.3 | WORKED ANSWERS

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