Management Control Systems
Saturday, April 15, 2023
12:15 PM
Management Control System
 Designed to help managers make decisions that will increase the organization's
performance.
 Align interests of manager and organization
Decentralization
 Delegation of decision-making authority to subordinates
 Superior/principal delegates duties to subordinate/agent (principal-agent)
 Advantages:
o Better use of local knowledge
o Faster response
o Wiser use of top mgmt's time
o Reduction of problems to a manageable size
o Training, evaluation and motivation of local managers
 Disadvantages
o Local managers making decision not in the best interest of top managers and owners
o Administrative duplication
o Prior decisions based on incomplete info
Responsibility Accounting
 Reports revenues and costs at the level within the org having the related responsibility
a. Cost center
i.
When there is well-defined relationship between input-output
ii.
Manufacturing operations/Production departments
iii.
Plant managers
b. Discretionary cost center
i.
When there is no well-defined relationship between input-output
ii.
Admin and Marketing
iii.
Staff managers
c. Revenue center
i.
Responsible for sales price and sales activity variances
ii.
Sales department
iii.
Sales managers
d. Profit center
i.
Responsible of managing costs and revenues
ii.
Basically, they handle the cost and revenue centers
iii.
Division heads
e. Investment center
i.
Responsible for profits and investment in assets
ii.
Group Vice president
Compensation Systems
1. Fixed compensation
a. Paid to manager independent of measured performance
2. Contingent compensation
a. Compensation based on measured performance