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16 Cards in this Set

  • Front
  • Back

What is Control?

Control is a process of ensuring that 'that which was supposed to happen actually happens'

What is unitary organisation

A unitary organisation is an organisation with a single location and usually a single product range.

The control in such organisations is usually on a much smaller level—like face-to-face

What is multidivisional organisation?

A multidivisional organisation has several different operating units, possibly in different locations, and will therefore be exposed to diverse operating environments and may have different processes of production and different products.

What is opportunity costs?

The earnings that could have been yielded if the division was better managed, the returns that could have been enjoyed if the assets were used to make a different product and the proceeds from liquidation of the assets that could have been used in better investments.

What are the 3 essential functions of cost system?

1. Valuation of inventory and measurement of the cost of goods sold for financial reporting purpose

2. Estimation of the costs of activities, products, services and customers for the purposes of pricing and also decision making about whether they are profitable and whether to continue supplying them

3. Providing feedback to managers and operators about process efficiency

Management accounting systems can be thought of as influencing the behaviour of organisations what two ways?

1.Through the influence of the information they provide on management decisions

2.Through the influence of the control measures they set on managerial behaviour

The 4 CP's of measurement are?

1. Check Position

2. Communicate Position

3. Confirm Priorities

4. Compel Progress

What did Eccles suggested five 'areas of activity' necessary for satisfactory performance measurement systems to be developed:

1. Developing new information architecture

2. Determining the necessary hardware, software and telecommunications technology

3. Aligning the information system with the company's incentives system

4. Drawing on outside resources

5. Designing a process to ensure that the other four activities occur

1. The methodology that can be used to develop appropriate internal measures for the activities of the business or process include the following steps:

1. Identifying the key outputs required from the activity

2. Identifying the key processes in providing the outputs

3. Identifying the interfaces of the activity with other parts of the firm or with others in the value network

4. Developing performance indicators for the key processes

5. Identifying data sources for measures

Profit-based measures seek to maximise profits. They are monitored by the investor or are used to evaluate and control the performance of business divisions and product lines

What are some common measures

Sale Margin

Controllable Profit

Contribution Margin

Net Profit

What are some problems Profit-based measures?

1. They ignore the amount of capital assets

2. It is a single period measure

How can Shareholder value been measured?

Corpoarate Value - Debt

(Sum of NPV's)

What is formula for Economic Profit

Net Operating profit after tax

- ((Fixed assets + Net current Assests) *

weight average cost of capital)

What are the two most popular methods of divisional performance evaluation?

Return on Investment (ROI)

Residual Income (RI)

What are some benefits to ROI?

1. ROI enables comparison of divisions of different sizes. This is because ROI provides a rate, whereas RI is expressed as an amount.

2. RI can therefore not be used at a corporate level. ROI is more widely used and understood compared to RI.

3. ROI approximates to other measures monitored by investors.

what are some drawbacks of ROI include:

1. ROI may lead managers to ignore profitable investment opportunities.

2. Managers may take on a project where returns do not cover the costs of capital, provided that they have a higher ROI than presently enjoyed.

3. RI is more flexible as it allows use of adjusted imputed rates to reflect the risks of the division.