A company has a management hierarchy in place to oversee different aspects of the business. Ultimately, the chief executive or president is responsible for the success and failure of a company. He delegates responsibilities to his subordinates who in turn delegate to others. Of course, depending on the size of the company, there could be few to several on each management level.
Management accounting systems function to measure and report the performance of managers at all levels in terms of revenues and costs. Each management department is considered a separate accounting unit. The manager for that department is in charge of controlling the revenues and costs associated with his division.
Although a manager may delegate responsibilities to his subordinates, still he is ultimately responsible for his division. Therefore, the accounting unit for every manager also incorporates the accounting units for all his subordinates. Each accounting unit is designed to serve a specific purpose. Yet, profit and investment centers can also serve other purposes such as to monitor a product line or the performance of managers.