Bundle: Cornerstones of Cost

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Chapter 13, Problem 5E
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Problem

Activity-Based Responsibility Accounting versus Strategic-Based Responsibility

Accounting

“A Balanced Scorecard expresses the complete story of a company’s strategy through an

integrated set of financial and nonfinancial measures that are both predictive and historical
and that may be measured subjectively or objectively.”

Required:

1. Using the above statement about scorecard measures, explain how

scorecard measurement differs from that of an activity-based management
system.

2. Explain what is meant by historical and predictive measures. Why are both
types important for describing a company’s strategy?
Step-by-step solution
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Step 1/2
1.

Scorecard measures differ due to their integrity. In fact, Strategy happens to be foundation
for integration, means that the originating source of these two factors is support and
coordination and they illustrate the organizational strategy in a comprehensive manner.

Most important is that they are manipulated to present the cause and effect hypothesis that
lead to comprehensive and well structured strategy. Another differentiation arises due to their
improvement other than that of financial and process perspectives, besides this learning and
growth and customer perspectives are also improved.

Step 2/2
2.

Meaning of historical and predictive measures:

Historical measure:

Historical measure is the process of determining an outcome of activities performed in

advance that is already undertaken activities. Hence, this process is concerned with past
performed activities. Therefore, it is a lag measure.

Predictive measure:

Predictive measure is related with future operations. It is used to predict the expected
outcome of future operations. Therefore, it drives future performance. And we can say it is a
lead measure.

Both of these measures are equally important for describing a company’s strategy because
expected outcome of activities performed in future are totally depend upon the results
achieved in past. Hence, past data is used to predict the future expected results. Hence we
can say company’s strategy can not be explained properly without the usage of any of them.

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