Management Accounting Business Strategy Evaluation Pocket Notes

Author : Stijn Masschelein
Publisher :
ISBN 13 :
Total Pages : 85 pages
Book Rating : 4.:/5 (13 download)

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Download or read book ACCT3323 written by Stijn Masschelein and published by . This book was released on 2018 with total page 85 pages. Available in PDF, EPUB and Kindle. Book excerpt: These notes discuss four different accounting tools to manage an organisation's strategy: budgets, incentive contracts, cost accounting, and the balanced scorecard. The first one, budgets, are a quantitative expression of a business plan for a specific period of time (p.184 in Horngren et al. 2012 or p.387 in Langfield- Smith et al. 2008). Budgets typically permeate the entire organisation and most employees collect information to put in the budget or they might even be directly responsible for managing a subset of the budget. Cost accounting is the domain of the accountants. Product cost calculations are a large input into the budgeting process but these cost calculations are also directly used to evaluate the viability and efficiency of investments, production lines, outsourcing decisions. When employees manage part of the budget and make decisions on how to implement the firm's strategy, the headquarters will want to make sure that employees work in the best interest of the firm. Firms will introduce explicit and implicit incentive contracts to reward good behaviour and punish bad behaviour.Budgeting and costing aims to quantify all the information that goes into strategic decision making and strategy implementation. That does not mean that all business decisions are only driven by these figures. Managers often use their own experience and intuition to augment the quantitative information. The balanced scorecard tries to formalise the interplay between objective information and subjective knowledge by summarising the firm strategy in a limited set of causally linked financial and non-financial measures. While budgeting and costing are often seen as merely strategy implementation tools, the balanced scorecard also serves as a way to form and evaluate an organisation's strategy. Nevertheless, a full balanced scorecard implementation requires careful planning. While the balanced scorecard for top management should be concise, more complexity is introduced when each lower level department needs its own balanced scorecard to aid in fulfilling its part of the overall strategy.