Chapter 17
Learning Objective 1
Management Control System
What is a management control system? It is a logical integration of techniques to gather and use information.
Planning
Setting Goals, Objectives, and
Performance Measures
Top management develops organization-wide goals, measures, and targets. They also identify the critical processes needed to achieve the goals. 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. Top management and critical process managers develop key success factors and performance
Setting Goals, Objectives, and
Performance Measures
Critical process managers and lower-level managers develop specific performance measures for each objective.
Organizational Goals
A well-designed management control system aids and coordinates the process of making
Critical Process
A critical process is a series of related activities that directly affect the
Key Success Factors
Key success factors are actions that must be
Learning Objective 2
Use responsibility accounting
to define an organizational
subunit as a cost center,
a profit center, or an
Responsibility Center
A responsibility center is a set of activities
Responsibility Accounting
Responsibility accounting is used to
identify what parts of the organization have primary responsibility for each objective, develop performance measures and targets to achieve, and design reports of these
Types of Responsibility Centers
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
Learning Objective 3
Compare financial and
Measures of Performance
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 activities.
Measures of Performance
be used in evaluating and rewarding managers and employees.
be affected by actions of managers and employees.
be reasonably objective and easily measured.
Nonfinancial Measures of
Performance
AT&T Universal Card Services uses 18
performance measures for its customer inquiries process.
These measures include average speed of
Nonfinancial Measures of
Performance
Often the effects of poor nonfinancial performance do not show up in the financial measures until
considerable ground has been lost.
Monitoring and
Reporting Results
Feedback and learning are at the center of
the management control system.
At all points in the planning and control
process, it is vital that effective
A Successful Organization and
Measures of Achievement
ORGANIZATIONAL LEARNING BUSINESS PROCESS IMPROVEMENT
Cycle Time, Defects, Activity Costs CUSTOMER SATISFACTION
Market Share, Survey Scores, Complaints FINANCIAL
STRENGTH
The Balanced Scorecard
A balanced scorecard is a performance measurement and reporting system that strikes a balance between financial and operating measures.
It links performance to rewards.
The Balanced Scorecard
The scorecard measures an organization’s performance from four key perspectives:
Key Performance Indicators
What are key performance indicators? They are measures that drive the
Learning Objective 4
Explain the importance of
evaluating performance and
how it impacts motivation, goal
Goal Congruence
Goal congruence exists when individuals and groups aim at the same
organizational goals.
Managerial Effort…
is exertion toward a goal or objective.
Supervising
Planning
Motivation…
is a drive for some selected goal.
It creates effort.
It creates action toward
Learning Objective 5
Prepare segment income
statements for evaluating profit
and investment centers using
Controllability
Management Control System
Controllable events Uncontrollable events
Controllability
Controllable costs include any costs that are influenced by a manager’s decisions
and actions.
An uncontrollable cost is any cost that
cannot be affected by the management of
Contribution Margin
The contribution margin is especially
helpful for predicting the impact on income of short-run changes in activity volume.
Managers may quickly calculate any
Segments
Segments are responsibility centers for which a
Segments
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
East
Learning Objective 6
Measure performance against
quality, cycle time, and
Quality Control
Cost of Quality Report
In a cost of quality report, the financial
impact of quality is displayed.
Prevention
Appraisal
Internal failure
Cost of Quality Report
Prevention costs are the costs incurred to
prevent the production of defective products or delivery of substandard services.
Cost of Quality Report
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
Quality-Control Chart
The quality-control chart is a statistical plot
of measures of various product dimensions or attributes.
This plot helps detect process deviations
Quality-Control Chart
Cycle Time
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.
Control of Cycle Time
Lowering cycle time requires
smooth-running processes and high quality, and also creates increased flexibility and quicker
Productivity
Productivity is a measure of outputs
divided by inputs.
Productivity measures vary widely
Control of Productivity
More than half the companies in the United States manage productivity as part of the effort to
Control of Productivity
How should outputs and inputs be
measured?
Labor-intensive organizations are concerned
Control of Productivity
Highly automated companies are concerned
with machine use and productivity of capital investments, so capacity-based measures, such as the percentage of time machines are available, may be most
Learning Objective 7
Describe the difficulties of
management control in
Service, Government, and
Nonprofit Organizations
Most service, government, and nonprofit
organizations have more difficulty
implementing management control systems.
Service, Government, and
Nonprofit Organizations
Learning Objective 8
Future of
Management Control Systems
A changing environment often means that organizations must set different subgoals or critical success factors.
Accounting Information
A management control system uses
management accounting tools such as
