Responsibility cost control system in China: a case of management accounting application

This paper introduces the responsibility cost control system installed at Han Dan Iron and Steel Company in the People’s Republic of China. The Company has adopted a series of management accounting techniques or procedures in its cost control system, including target costing, responsibility accounting, standard costing, flexible budgeting, internal transfer pricing, behavior motivation, performance evaluation, variance analysis, and so on. In particular, the system has integrated responsibility accounting and cost control by introducing market mechanisms to substantially reduce production costs and raise profitability. The successful experiment reveals that the responsibility cost control system is an effective tool for cost control under the changing Chinese business environment. The Han Dan experience demonstrates that management accounting can play a positive role in improving business management and profitability in China or other developing countries. In addition, this study casts light on effective diffusion of management accounting practices under different social and economic systems. c © 2002 Elsevier Science Ltd. All rights reserved.