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Management Accounting and Performance Evaluation - Essay Example

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Facts of the Case Following are the facts of the case: Shirley Banks has recently joined PFA Ltd as factory manager with a motive to increase the turnover and market share. The factory runs for 24 hours with three eight-hour shifts. The shifts are rotated in such a manner that no one team has to consistently work at night. Currently the factory has a high number of temporary staff and the production is behind the targets. The shipment of orders is always done late. The workers are highly discontent due to the frequent impractical actions by the management regarding the factory management. Recent examples are the decisions to change every shift to twelve hours, cancellation of overtime payments and introduction of weekly performance reports. The high unachievable monthly targets have put undue strain on the workers. Moreover, the general office costs are allocated to each shift manager. The overall effect is that the workers are not motivated enough. The logistics manager is running the local election campaign and in doing so he is using the company’s resources. No one has raised the issue so far. Nature of the Problem The basic nature of the problem lies with the incompetent management control process in the company. This has caused several other problems such as late order delivery, highly de-motivated workers, unachieved targets, unexplained allocation of general office costs to each shift manager and high level of temporary workforce. Management Accounting Control Systems Although the management accounting control systems and management control systems are mostly used interchangeably, the management accounting control is only one aspect of the control mechanism exercised by the management. The primary aim of management control systems is to achieve the organization’s objectives by influencing employee behaviours. There are three different types of control approaches i.e. action controls, results control, personnel and cultural controls (Merchant, 1998 cited in Drury, 2007, p.388). The management accounting control system is related to the results control. It is based on two elements, the one is formal planning process and the second is responsibility accounting. The formal planning process encompasses budgeting process and long-term planning process whereas the responsibility accounting involves the establishment of responsibility centres (Drury, 2007, p.395). Responsibility Accounting The responsibility accounting involves creating responsibility centres to make accountable the individuals for financial results and outcomes. The individuals responsible for responsibility centres are made accountable any deviations from budget targets. Overall, the responsibility accounting involves: Identification of Controllability The items, which can be controlled by managers and those which they cannot control and therefore, should not be held accountable for, should be identified. This is based on controllability principle. The principle states that only those costs can be or should be charged to responsibility area that can be influenced by the manager responsible. This principle is applied by ...Show more
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Management Accounting and Performance Evaluation- PFA Limited Table of Contents Table of Contents 2 Introduction 3 Facts of the Case 3 Nature of the Problem 4 Management Accounting Control Systems 4 Responsibility Accounting 5 Identification of Controllability 5 Determination of difficulty of financial targets 5 Participation of managers in setting the financial targets 7 Contingency Theory 8 Characteristics of an Effective Performance Measurement 8 Use of Accounting Information in Performance Evaluation 9 Recommendations 10 Conclusion 12 References 13 Introduction This project is an analysis of the management control problems faced by Plastics For All Ltd…
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