Page 167 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes Self Assessment

Fill in the blanks:
13. The importance of ………………… is that it provides the desirable pressure in subordinate
managers to take corrective action on their own.

14. ……………………. overhead variable is defined as the actual amount of overhead incurred
minus the expected amount based on flexible budget for actual inputs.

7.11 Summary

 Strategic planning is the process of deciding on the nature and size of several programmes
that are to be undertaken in implementing an organization’s strategies.
 Strategic plan is prepared early in the year and developed on the basis of the best
information available at that time; its preparation involves relatively few managers and
it is stated in fairly broad terms.

 There are two general types of budget revisions:
i. Procedures that provide for systematic (say quarterly) updating of the budgets.
ii. Procedures that allow revisions under special circumstances.
 One of the purposes of management control system is to encourage the manager to be
effective and efficient in attaining the goals of the organization.
 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 importance of formal reporting is that it provides the desirable pressure in subordinate
managers to take corrective action on their own.

7.12 Keywords

Actual Capacity Utilisation Ratio: This ratio indicates the extent of which facilities were actually
utilised during the budget period.
Budgeted Balance Sheet: The budgeted balance shows the balance sheet implications of decisions
taken in the operating budget and capital budget.

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.
Capital Budget: The capital budget states the approved capital projects plus a lump-sum amount
for small projects that do not require high level approval.
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.
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.

Logistic Expenses: Logistic expenses usually reported separately from order getting expenses.
They include order entry, warehousing and order picking, transportation to the customer and
collection of accounts receivable.

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