Management

Control System
Module 1
Management Accounting
“Management Accounting is concerned with
accounting information that is useful to
management.”
 Robert N. Anthony
Management Accounting is the presentation of
accounting information in such a way as to assist
management in the creation of policy and day to day
operation of the undertaking.
Management Control System

A Management Control System is a means of

Gathering & using information.
 Elements of Management Control
System
A Detector
An assessor
An effector
A communication Network
Meaning
“Management Control is the process by which
managers assure that resources are obtained and used
effectively and efficiently in the accomplishment of
an organization's objective.”
-Robert. N. Anthony
Steps in Control Process
 Task Control

"Task control is the process of ensuring

that specific tasks are carried out
effectively and efficiently."
 Management Control vs. Task
Control
Management Control Task Control

 Similar throughout the  Different for each task

organization  Either no interaction or
 Interaction Between interaction between
Managers manager & non
manager
 Focuses on  Focuses on specific
responsibility centre
tasks
 Focuses on planning &
execution  Primary
 Relates to activities
focuses on
execution
that are not specific
 Relates to specific
tasks
 Operational Control

Operational control systems are designed to ensure

that day-to-day actions are consistent with
established plans and objectives
 Management by Objective
(MBO)
“Management by objective is a comprehensive
managerial system that integrates many key
managerial activities in a systematic manner and that
is consciously directed towards the effective and
efficient achievement of organizational and
individual objectives.”
 B O
S O FM
C E S
P R O
1. Setting Objectives-
 objectives are set by the top Management
 Objectives should be made known to all members
of the organization
 Key Result Areas (KRA) should be identified
2. Developing Action Plans
 Objectives are translated into plans
 Resources and responsibilities are allocated
 Time dimensions are decided to meet the targets
3. Periodic Review or Monitoring the
Progress
 Proper monitoring system is established for
regular monitoring and periodic review
 Immediate corrective actions are taken if any
deviations found
4. Performance appraisal
 Periodic appraisal is done to evaluate the actual
results against the set objectives.
 B O
a g e s of M
a nt
Adv
1. Improved Planning
 It involves participative decision making resulting
in more realistic plans.
 Individuals are encouraged to work on goals than
relying on guesswork's
2. Coordination
 Working towards common objectives enables
individuals at various levels to have a common
direction.
 This promoted integrated view of management &
helps in inter-departmental co-ordination
3. Motivation and Commitment
 Participation of subordinates in goal setting and
performance reviews tend to improve their
commitment to performance.
 This leads to improved job satisfaction & high
morale
4. Accurate Appraisals
 MBO provides an objective criterion for
evaluation of actual performance
 Quantitative targets for every individual enable
him to evaluate his own performance
5. Organizational change and Development
 MBO provides a frame­work for planned changes thus,
enabling managers to initiate and manage change
  Therefore, MBO improves the capacity of the
organization to cope with its changing environment.

http
://www.preservearticles.com/201106147990/6-benefits-of-management-by-objectives-
mbo-for-the-overall-growth-of-the-business.html
 B O
on s of M
Lim itati
1. Failure to understand MBO philosophy
 MBO philosophy is based on self direction
 Success of MBO depends upon its proper
understanding by managers.
2. Difficulty in setting goals
 Setting objectives is not a simple task
 Casual setting of objectives will make MBO a
liability to the business
3. Time consuming
 Objectives are to be set after considering the pros
& cons.
 Periodic progress and final review sessions also
consumes a lot of time
4. Increases paper work
 It involves  ocean of paper-work such as training
manuals, newsletters, instruction booklets,
questionnaires, performance data and report into
the Organization
5. Develops conflicting objectives
 Each individuals goal may conflict with the other
 Individuals follow paths that are best in their own
interest but which are detrimental to the company.

http
://kalyan-city.blogspot.in/2010/06/management-by-objectives-mbo-peter.ht
ml
Essentials for effective MBO
1. Support from all
2. Acceptance of MBO programme by managers
3. Training of managers
4. Allocation of adequate time and resources
5. Provision of uninterrupted information feedback

http://kalyan-city.blogspot.in/2010/06/management-by-objectives-mbo-peter.html
 Cost Centre
Cost centre is a division that adds to the cost of an
organization, but only indirectly adds to its profits.
 Profit Centre

The branch or division of a company that creates

profits individually and separately from the main
organization.
Investment Center

A business unit that can utilize capital to directly

contribute to a company's profitability
 Cost Unit

The cost incurred by a company to produce, store

and sell one unit of a particular product. Unit costs
include all fixed costs (i.e. plant and equipment)
and all variable costs (labor, materials, etc.)
involved in production.
 TASK
Bring out the differences between
cost center & cost unit…
Cost
Cost is the amount of expenditure, actual or notional
relating to a specific thing or activity like product,
service, job etc.
 s t s f or
C o
aki ng
is i o n M
De c
Opportunity Cost
Sunk Cost
Relevant Cost & Irrelevant Cost
Differential Cost
Out of Pocket Cost
Imputed Cost
Marginal Cost
Replacement Cost
Common Cost
Shut Down Cost
Elements of Cost
 Material Cost

 Labor Cost

 Expenses
Classification of Cost
 Direct & Indirect Cost
 Fixed, Variable & Semi variable Cost
 Committed & Discretionary Cost
 Product Cost & Period Cost
 Controllable & Non Controllable cost
 Historical Cost & Predetermined Cost
 Normal Cost & Abnormal Cost