Management Control Systems Essay examples

6071 Words Mar 30th, 2015 25 Pages
Management control systems
Solutions to Chapter 16 questions

(a) See Chapter 16 for the answer to this question. In particular, your answer should stress: (i) The need for a system of responsibility accounting based on a clear definition of a manager’s authority and responsibility. (ii) The production of performance reports at frequent intervals comparing actual and budget costs for individual expense items. Variances should be analysed according to whether they are controllable or non-controllable by the manager. (iii) The managers should participate in the setting of budgets and standards. (iv) The system should ensure that variances are investigated, causes found and remedial action is taken. (v) An effective cost control system
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It is inappropriate to compare actual performance based on one set of environmental variables with budgeted performance based on another set of environmental variables. Consequently, a budget that is used for planning purposes will be in conflict with one that is used for performance evaluation. The conflict between motivation and evaluation is described by Barrett and Fraser (1977) (see Bibliography in main text) as follows: In many situations the budget that is most effective in the evaluation role might be called an ex-post facto budget. It is one that considers the impact of uncontrollable or unforeseeable events, and it is constructed or adjusted after the fact. The potential role conflict between the motivation and evaluation roles involves the impact on motivation of using an ex-post facto standard in the evaluation process. Managers are unlikely to be totally committed to achieving
MANAGEMENT CONTROL SYSTEMS

Question 16.32

Question 16.33

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the budget’s objectives if they know that the performance standards by which they are to be judged may change. In other words, for evaluation purposes the budget might be adjusted to reflect changes in environmental variables. If a manager expects that the budget will be changed for evaluation purposes, there is a danger that he or she will not be as highly motivated to achieve the original budget. (c) (i) The planning and motivation conflict might be resolved by

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