Page 269 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes facility include (ii) Manufacturing Overhead (ii) Number of accounts
receiving, storing, Variances receivables processed
dispatching etc. (iii) Cost per activity level. per hour.
(iii) Inventory level not to
exceed certain amounts.
(iv) Abiding by plant
maintenance schedules.
(E) By Product / (i) Cost and revenues and (i) Time period for completion
Programme Investments across i.e. break-even time is
responsibility centres as far the time from initial idea
as they pertain to programme date to the time when the
or product (compared to cumulative present value of

budgeted / target amounts). cash inflows of the project
This is sometimes referred to equals the present value
as activity costing. of total (to market) cash
outfl ows.

Self Assessment

Fill in the blanks:
10. Performance measures are a central component of ……………… and reporting system.
11. Performance measurements of an organisation unit should be a prerequisite for allocating
……………… within that organisation.

14.4 Performance Reports: Format and Essential Features

1. Tailored to the organisation structure and controllability: The performance report system
should be structured to the organisation structure of the enterprise in the same way as
budgeting and accounting systems. There should be a separate performance report for
each responsibility centre, starting with those at the lowest level which in turn feed into
summary reports for each higher level.
2. Designed to implement the exception principle in management: Performance report
must clearly distinguish between controllable and non-controllable items. Performance
measurement requires that actual results be compared with plans, objectives and standards
so that differences (exceptions) call management attention to high, low and satisfactory
performance. The variances from plans signal the need for investigation and possible
action. The action may be corrective, commendatory or revisory. Both favourable and
unfavourable variances justify investigation. Unfavourable variances may signal danger
and further investigation generally is necessary to pinpoint the precise cause.
3. Repetitive and relate to short-time spans: Performance should be repetitive, generally on
a monthly basis, although certain problems may suggest the need for weekly or even daily
reports that focus on a particular problem.
4. Adapted to the requirements of the principal user: Performance reports serve the evaluation
and decision-making needs of the user.
5. Simple, understandable and report only essential information: Reports should not be too
long; complex tabulations should be avoided. Reports should be carefully screened to
eliminate all nonessential information. Many performance reports include too much data
rather than too little.

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