Page 158 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 7: Budgeting: Tool for Management Control

Notes
Example: Actual hours worked 3,600, Budgeted hours 4,000, Actual capacity utilisation
3600

ratio =  100 90%
4000
4. Levels of Activity Ratio: This may be defined as the number of standard hours equivalent
to work produced expressed as a percentage of budget standard hours.

Example: Actual production converted into standard hours 5,600 Budgeted Production
converted into standard hours 6,000

5600

Level of activity ratio =  100 93.33%
6000
5. Efficiency Ratio: This ratio may be defined as standard hours equivalent to work expressed
as a percentage of the actual hours spent in producing the work.

Example: Standard hours work produced 5600; Actual hours worked 5,000, Efficiency
5600
Ratio =  100 112%

5000
6. Calendar Ratio: This ratio may be defined as the relationship between the number of
working days in a period and the number of working days in the relative budget period.

Example: Actual working days in a month 26; Budget working days in a month 25,
Calendar Ratio

26
Calendar ratio =  104%
25
Self Assessment

Fill in the blanks:

11. ……………… is the relationship between the budgeted number of working hours and the
maximum possible no. of working hours in the budgeted period.
12. …………………. is defined as the relationship between the number of working days in a
period and the number of working days in the relative budget period.

7.9 Management Control of Operations

Management control is working through others, so that the work may get done effectively.
Managers, literally, do not control costs; what managers do is to influence the actions of the
people, who are responsible for incurring the costs. The manager selects the workforce, makes
sure that they are adequately trained, decides where they fit best in the organisation, provides
advice, suggestions and disciplines, resolves disputes within the responsibility centres, approves
proposed actions that the employees are authorised to take on their own authorities, interacts
with other managers to obtain their coordination and to resolve problems when their activities
impede the work of the responsibility centre and above all, seeks to create an element that
induces employees to work efficiently and effectively. To carry on these activities, managers
need information which are identified as:

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