Chapter 17. Management Control Systems and Responsibility Accounting. Describe the relationship of management control systems to organizational goals. Learning Objective 1. Management Control System. What is a management control system?. It is a logical integration of techniques
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Management Control Systems
and Responsibility Accounting
What is a management control system?
It is a logical integration of techniques
to gather and use information.
Top management develops organization-wide
goals, measures, and targets. They also identify
the critical processes needed to achieve the goals.
Top management and critical process managers
develop key success factors and performance
measures. They also identify specific objectives.
Critical process managers and lower-level
managers develop specific performance
measures for each objective.
A well-designed management control system
aids and coordinates the process of making
decisions and motivates individuals throughout
the organization to act in concert.
A criticalprocess is a series of related
activities that directly affect the
achievement of organizational goals.
A cost center’s manager is accountable
for costs only.
Profit centers have responsibility for
controlling revenues as well as costs.
Investment centers have responsibility
for revenues, expenses, and the
investment used by the center.
Good performance measures will…
relate to the goals of the organization.
balance long-term and short-term concerns.
reflect the management of key actions and
be readily understood by employees.
be affected by actions of managers and employees.
be used in evaluating and rewarding managers and employees.
be reasonably objective and easily measured.
be used consistently and regularly.
Often the effects of poor nonfinancial performance
do not show up in the financial measures until
considerable ground has been lost.
Market Share, Survey Scores, Complaints
BUSINESS PROCESS IMPROVEMENT
Cycle Time, Defects, Activity Costs
Training Time, Turnover, Staff Satisfaction Score
A balanced scorecard is a performance
measurement and reporting system that
strikes a balance between financial and
It links performance to rewards.
It gives explicit recognition to the
diversity of organizational goals.
The scorecard measures an organization’s
performance from four key perspectives:
What are key performance indicators?
They are measures that drive the
organization to achieve its goals.
Goal congruence exists when individuals
and groups aim at the same
It is achieved when employees, working in
their own perceived best interests, make
decisions that help meet the overall goals
of the organization.
is exertion toward
a goal or objective.
is a drive for some selected goal.
Management Control System
Controllable costs include any costs that are
influenced by a manager’s decisions
An uncontrollable cost is any cost that
cannot be affected by the management of
a responsibility center within a given time span.
Segments are responsibility centers for which a
separate measure of revenues and costs is obtained.
Net sales $950,000 $1,950,000 $2,900,000
Variable costs 750,000 950,000 1,700,000
Contribution margin $200,000 $1,000,000 $1,200,000
Controllable costs 75,000 60,000 135,000
Segment margin $125,000 $ 940,000 $1,065,000
Allocated costs 70,000 80,000 150,000
Income $ 55,000 $ 860,000 $ 915,000
Unallocated costs 300,000
Organization profit $ 615,000
Quality control is the
effort to ensure that
products and services
perform to customer
Prevention costs are the costs incurred to
prevent the production of defective products
or delivery of substandard services.
Appraisal costs are the costs incurred to
identify defective products or services.
Internal failure costs are the costs of defective
components and final products or services
that are scrapped or reworked.
External failure costs are the costs caused by
delivery of defective products or services
to customers, such as field repairs,
returns, and warranty expenses.
Cycle time, or throughput time, is the time
taken to complete a product or service, or
any of the components of a product or service.
One key to improving quality is to reduce
More than half the companies in the United States
manage productivity as part of the effort to
improve their competitiveness.
Outputs of service and nonprofit
organizations are more difficult
to measure than are the cars or
computers that are produced by
A changing environment often means that
organizations must set different subgoals
or critical success factors.
Different subgoals create different targets
and different benchmarks for evaluating