Fairmont Inc. uses an accounting system that charges costs to the manager who has been delegated the authority to make decisions concerning the costs. For example, if the sales manager accepts a rush order that will result in higher than normal manufacturing costs, these additional costs are charged to the sales manager because the authority to accept or decline the rush order was given to the sales manager. This type of accounting system is known as:

Question

Quizplus · Accepted Answer

The accounting system described in the statement is called responsibility accounting, which involves the assignment of costs to the specific individuals or departments responsible for making decisions that impact those costs. Choice B (contribution accounting) involves the separation of fixed and variable costs for decision-making purposes. Choice C (absorption accounting) is a method of allocating all costs to manufactured products, including direct and indirect costs. Choice D (operational budgeting) is a process of creating and managing budgets for the day-to-day operations of a business.