Management Accounting - Measue Of Qualitive Plans And Controls

“Quantitative models and qualitative models of revenues and costs for evaluation are important for measurement of managerial performance. Given that the ‘traditional’ cost accounting measures are quantitative, how can cost and management accounting begin to assess and ‘measure’ qualitative plans and contr

Responsibility accounting refers to ‘tools and concepts used to measure the performance of an organisation’s people and sub units.’ The basis of a responsibility accounting system is to appoint all of the different departments within an organisation a specific type of responsibility center. A responsibility center is a sub-unit within the organisation whose manager is held responsible for specified financial results of that unit. Responsibility centers can be broken down into four common types as follows;

Once the different responsibility centers are established within an organisation, the separate managers have to be assessed on the quality of the decisions that the have made for a set period. The performance of the departments is summarised periodically in what is known as a ‘performance report’. A performance report is prepared by comparing the actual results in key financial areas for the unit with that of the budgeted results. For example a cost center performance report would have all of the appropriate expense items that relate to that particular department. A performance report usually also contains the variance between the actual and budgeted figures. The data found in a performance report helps managers use management by exception to control an organisations operation efficiently. It also enforces the qualitative aspects of the managers’ performance on control and their plans.

Responsibility accounting, when used properly, can be used to motivate the managers that are assessed by the system. It is suppose to give information to managers about the strengths, weaknesses, opportunities and treats that the department has. Depending on the individual, reactions to responsibility accounting can be varied. For example, a manger of a sales team may receive a performance report stating that the revenue attributed to their department is down for a particular period. This may have a positive effect on the manager for the following period, by motivating him or her to work harder and more effectively to achieve a higher level of revenue in the following performance report. O

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