Definition:
Activity-Based Responsibility Accounting (ABRA) is a management accounting technique that combines activity-based costing (ABC) with responsibility accounting. It assigns costs to specific responsibility centers based on the activities that consume those costs.
Key steps in ABRA:
- Identify activities: Identify the key activities that drive costs within the organization.
- Determine cost drivers: Determine the factors that cause costs to change for each activity.
- Allocate costs: Allocate costs to activities based on the cost drivers.
- Assign activities to responsibility centers: Assign activities to specific responsibility centers based on the department or individual responsible for the activity.
- Measure performance: Evaluate the performance of responsibility centers based on their costs and the value they add to the organization.
Why is ABRA used?
- Improved accountability: ABRA assigns costs to specific responsibility centers, making it easier to hold managers accountable for costs and performance.
- Enhanced decision-making: ABRA provides a more informed basis for making decisions about resource allocation, pricing, and product mix.
- Better cost control: By identifying and managing activities that drive costs, ABRA can help businesses improve cost control.
Example:
In a manufacturing company, ABRA might assign costs to specific production lines or departments based on the activities they perform, such as machine setup, product assembly, and quality control. This allows managers to track the costs associated with their specific areas of responsibility and make informed decisions about resource allocation and performance improvement.
In essence, ABRA is a strategic approach that combines ABC with responsibility accounting to provide a more accurate and informative view of costs and performance at the responsibility center level.
