Horngren Mgmt Ch13

Embed Size (px)

DESCRIPTION

gdbdb dxb d d dxr dxr d d d drg dr d d dg drg drgdrg drg drgd dr dgd gdrg drg drgdr drg drg

Citation preview

  • 5/27/2018 Horngren Mgmt Ch13

    1/23

    2007 Pearson Education Canada Slide 13-1

    Management ControlSystems, The Balanced

    Scorecard, andResponsibility Accounting

    13

  • 5/27/2018 Horngren Mgmt Ch13

    2/23

    2007 Pearson Education Canada Slide 13-2

    Management Control System

    A management control system is a logicalintegration of management accounting tools togather and report data and to evaluate performance

    Purposes of a management control system

    clearly communicate the organizations goals

    ensure that every manager and employeeunderstands the specific actions required ofhim/her to achieve organizational goals

    communicate the results of actions across theorganization

    ensure that the management control systemadjusts to changes in the environment

  • 5/27/2018 Horngren Mgmt Ch13

    3/23

    2007 Pearson Education Canada Slide 13-3

    Management Control System Steps

    1. Begin by specifying the organization's goals, subgoals and

    objectives Goals are what the organization hopes to achieve in the long

    run

    Subgoals or key success factors are more specific andprovide more focus to guide daily actions

    Objectives are specific benchmarks which managementwould like to see achieved

    Important to keep all three in balance to avoid concentratingsolely on short-runachievements at the expense of long rungoals

    2. Establish responsibility centers

    3. Develop performance measures

    4. Measure and report on financial performance

    5. Measure and report on non-financial performance

  • 5/27/2018 Horngren Mgmt Ch13

    4/23

    2007 Pearson Education Canada Slide 13-4

    The Management Control System

    Set Goals,

    Measures,

    Targets

    Feedback

    and

    Learning

    Monitor,

    Report

    Plan

    and

    Execute

    Evaluate,

    Reward

  • 5/27/2018 Horngren Mgmt Ch13

    5/23

    2007 Pearson Education Canada Slide 13-5

    Setting Goals, Objectives and

    Performance Measures

    Top management develops organization-wide goals, measures

    and targets. They also identify the critical processes.

    Top management and critical process managers develop

    critical success factors and performance measures.

    They also specify objectives

    Critical process managers and lower-level managers

    develop performance measures for objectives.

  • 5/27/2018 Horngren Mgmt Ch13

    6/23

    2007 Pearson Education Canada Slide 13-6

    Forms of Organizational Structure

    VP

    Production

    VP

    Marketing

    VP

    Human Resources

    VP

    Finance

    StaffFunctional

    Staff

    VP

    Division B

    VP

    Division A

    VP

    Division C

    President

    Divisional

    Functional VPs

    Divisional

    VPs

    Matrix

    A

    B

    C

    Mkt. Prod. H.R. Fin.

    President

    President

  • 5/27/2018 Horngren Mgmt Ch13

    7/23 2007 Pearson Education Canada Slide 13-7

    Responsibility Centres

    Set of activities assigned to a manager or a group of

    managers/employees Based on principle of responsibility accounting which holds that

    managers should be evaluated on the activities which they can

    influence or control

    Cost Centre

    Area for which cost data is accumulated such as an assembly department

    Expense Centre

    Area dominated by discretionary expenses such as legal or accounting

    Revenue Centre

    Area primarily responsible for generating sales such as a sales office

    Profit Centre Area responsible for controlling costs and generating revenues

    Investment Centre

    Area responsible for income (revenues - expenses) in relation to its

    invested capital

  • 5/27/2018 Horngren Mgmt Ch13

    8/23 2007 Pearson Education Canada Slide 13-8

    Motivating Employees to Excel

    To achieve maximum benefits at minimum cost, amanagement control system must foster goal

    congruence and managerial effort

    Goal Congruence exists when individuals andgroups aim for the same organizational goals

    through their decision-making

    Managerial Effort is an exertion toward a goal orobjective i.e. working faster andbetter

    Incentives are needed for both to be achieved

  • 5/27/2018 Horngren Mgmt Ch13

    9/23 2007 Pearson Education Canada Slide 13-9

    Developing Measures of Performance

    Good performance measures will1. Relate to the goals of the organization

    2. Balance long-run and short-run concerns

    3. Reflect the management of key decisions and

    activities

    4. Be affected by actions of managers and employees

    5. Be readily understood by managers andemployees

    6. Be used in evaluating and rewarding employees

    7. Be reasonably objective and easily measured

    8. Be used consistently and regularly

  • 5/27/2018 Horngren Mgmt Ch13

    10/23 2007 Pearson Education Canada Slide 13-10

    Controllability and Measuring

    Financial Performance

    Controllable Cost

    Uncontrollable Cost

    Measuring Financial Performance

  • 5/27/2018 Horngren Mgmt Ch13

    11/23 2007 Pearson Education Canada Slide 13-11

    Controllable Cost

    Cost which is directly influenced by the manager

    of a responsibility centre during a particular time

    period

    Absolute or total control is not required in order

    for a cost to be classified as controllable

    Key is to look for the manager or managers who

    are in the best position to explain the resultsachieved

  • 5/27/2018 Horngren Mgmt Ch13

    12/23

    2007 Pearson Education Canada Slide 13-12

    Uncontrollable Cost

    Any cost that cannot be affected by management

    of a responsibility centre within a given time span

  • 5/27/2018 Horngren Mgmt Ch13

    13/23

    2007 Pearson Education Canada Slide 13-13

    Measuring Financial Performance

    Principle of responsibility accounting holds that it

    is fair to evaluate managers only on the costs

    under their control

    Uncontrollable costs should be ignored in

    evaluating the manager because nothing he or

    she does will affect these costs

  • 5/27/2018 Horngren Mgmt Ch13

    14/23

    2007 Pearson Education Canada Slide 13-14

    Contribution Income Statement for

    Measuring Performance

    Evaluate manager on "contribution controllable by segmentmanager" (all controllable costs)

    Evaluate segment on its "contribution by segment" (all directcosts)

    Whole Branch BranchCompany A B

    Net sales revenue $4,000 $1,500 $2,500

    Variable costs 3,260 1,200 2,060

    Contribution margin 740 300 440

    Fixed costs controllable by manager 260 100 160Contribution controllable by manager 480 200 280

    Fixed costs controllable by others 200 90 110

    Contribution by segment 280 $110 $170

    Unallocated costs 100

    Income before income taxes $180

    Controllable

    Costs

    Direct

    Costs

    IndirectCosts

    UncontrollableCosts

  • 5/27/2018 Horngren Mgmt Ch13

    15/23

    2007 Pearson Education Canada Slide 13-15

    Nonfinancial Performance Measures

    Control of Quality

    Control of Cycle Time

    Control of Productivity

  • 5/27/2018 Horngren Mgmt Ch13

    16/23

    2007 Pearson Education Canada Slide 13-16

    Control of Quality

    Quality requires meeting customers'requirements and maintaining this level

    throughout the production and sales process

    Four categories:

    1. prevention

    2. appraisal

    3. internal failure

    4. external failure

    Total quality management (TQM) focuses on all

    areas of business

  • 5/27/2018 Horngren Mgmt Ch13

    17/23

    2007 Pearson Education Canada Slide 13-17

    Control of Cycle Time

    Cycle time is the time taken to complete a

    product or service

    Summary measure of effectiveness and efficiency

    and an important cost driver

  • 5/27/2018 Horngren Mgmt Ch13

    18/23

    2007 Pearson Education Canada Slide 13-18

    Control of Productivity

    Relationship of outputs to inputs for material,

    labour and equipment

    Multiple productivity measures may include

    Labour cost as a % of sales dollars

    Sales per employee

    Machinery & equipment investments per

    employee Total labour cost per hour

  • 5/27/2018 Horngren Mgmt Ch13

    19/23

    2007 Pearson Education Canada Slide 13-19

    Successful Organizations and

    Measures of Achievement

    CUSTOMER SATISFACTION

    BUSINESSS PROCESS IMPROVEMENTS

    ORGANIZATIONAL LEARNING

    FINANCIAL

    STRENGTH

  • 5/27/2018 Horngren Mgmt Ch13

    20/23

    2007 Pearson Education Canada Slide 13-20

    Balanced Scorecard

    Performance reporting approach which links organizational

    strategy to actions of managers and employees Combines financial and operating measures

    Links performance to rewards

    Recognizes diversity in organizational goals

    Financial

    Strength

    Customer

    Satisfaction

    Business Process

    Improvement

    Organizational

    Learning

  • 5/27/2018 Horngren Mgmt Ch13

    21/23

    2007 Pearson Education Canada Slide 13-21

    Management Control Systems in Service,

    Government and Nonprofit Organizations

    Control systems are more difficult to implementand maintain:

    Outputs are more difficult to measure

    Quality ratings are less clear

    Important to properly train and motivate

    employees to achieve organization's goals and

    consistent monitoring of objectives in accordancewith critical subgoals

  • 5/27/2018 Horngren Mgmt Ch13

    22/23

    2007 Pearson Education Canada Slide 13-22

    Management Control Systems in Service,

    Government and Nonprofit Organizations

    Government and nonprofit organizations face furtherproblems:

    Goals and objectives are less clear Professionals less receptive to control

    systems Lack of profit measure makes measurements

    more difficult Less pressure to improve from "owners" Budgeting is more of a bargaining game to

    acquire additional funding and less of aplanning tool Motivations and incentives of organizational

    employees are often drastically different fromfor-profit organizations

  • 5/27/2018 Horngren Mgmt Ch13

    23/23

    2007 Pearson Education Canada Slide 13-23

    The Future of Management Control Systems

    ResponsibilityCentres

    OrganizationalGoals

    OrganizationalStructure

    PerformanceMeasurement

    A changing environment requires changes in the management control

    system

    Four keyfactors mustbe monitoredat all times

    Important factors to keep in mind: Individuals will generally behave in their own self-interest Design systems so that individuals pursuing their own self-interest will also

    achieve the organization's objectives Best benchmark for evaluating current performance is expected or budgeted

    performance Nonfinancial performance is just as important as financial performance Periodically review the success of the management control system Learn from your and your competitors' mistakes