Management Control System

Accounting: text and cases / Anthony, Robert N. Hawkins, David F & Merchant, Kenneth A. / McGraw-Hill 2011 13.ed part of ch. 22 pp 650-654

Chapter

Control: The Management Control Environment

In this and the next three chapters, we describe the nature of the management control process and the use of accounting information in that process. This chapter describes the environment in which management control takes place: the organization, the rules and procedures governing its work, the organization's culture, and the organization's exter­ nal environment Management control focuses on organization units called responsibility centers. There are four types of responsibility centers that can be used: revenue centers, expense centers, profit centers, and investment centers. Profit centers and investment centers may require the use of transfer pricing, which this chapter also addresses.

Management Control

has goals; it wants to accomplish certain things. It also has strategies for attaining these goals, which are developed through an activity called strategy formula­ tion. Strategy formulation is not a systematic activity because strategies change when­ ever a new opportunity to achieve the goals-or a new threat to attaining the goals-is perceived, and opportunities and threats do not appear according to a regular schedule. Essentially, the management control process takes the goals and strategies as given and seeks to assure that the strategies are implemented by the organization. Formally, management control is defined as the process by which managers influence members of the organization to implement the organization's strategies efficiently and effec­ tively. The word control suggests activities that ensure the work of the organization proceed as planned, which is certainly part of the management control function. How­ ever, management control also involves planning, which is deciding what should be done. The organization will not know how to implement...