SUBJECTManagement Control System

Management performance - A measure of management performance, in which the focus is on how well the manager is doing.

Economic performance - A measure of economic performance, in which the focus is on how well the profit center is doing as an economic entity.

Types of Profitability measures Contribution Margin Direct Profit Controllable Profit Income before Taxes Net Income

Discretionary expense center

Engineered expense centers

Profit Center

Investment Centre

Budget Preparation

Profit center: A business unit is judged based on the profits it generates. The focus is on increasing profits, which can be achieved through a combination of increasing sales and reducing expenses.

Performance Measured by: Contribution margin , direct profit: , controllable profit , income before taxes, net income

Investment center: A business unit is judged based on its return on investment. The focus is on increasing this return, both in total dollars and as  percentage of sales. This can be achieved with a combination of increasing sales, reducing expenses, and reducing the investment in assets.Performance Measured by: ROI, EVA

Improve quality of decision as decision taken by managers closest to the point of decision

Increase Speed

Managers are free to use their imagination and initiative

Management of performance is broadened

Always try to improve their competitive advantage

Provide top Management with information on profitability of the company's individual components

Helps to focus mainly on the internal controls of the organization. Reliance on the work of internal audit. Auditing promotes

transparency and accuracy in the financial disclosures made by an organization

Reduce of such corporations to conceal unscrupulous dealings

Management Audit Establish the current level of effectiveness Suggest Improvement Lay down standards for future performance Increased levels of service quality and performance Guidelines for organizational restructuring Introduction of management information systems to assist in

meeting productivity and effectiveness goals Better use of resources due to program improvements

Operational Audit is a systematic review of effectiveness, efficiency and economy of operation

To appraise the effectiveness and efficiency of a division, activity, or operation of the entity in meeting organizational goals.

To understand the responsibilities and risks faced by an organization.

To identify, with management participation, opportunities for improving control.

To provide senior management of the organization with a detailed understanding of the Operations.

Business Unit Mission: Build Hold Harvest Industry analysis

◦ While maximizing profits in one’s department it should not affect the other departments negatively.

◦ Incentives should be based not on the gross profits of their respective departments but on the profits of the company as a whole.

o PROBLEM STATEMENT The budgeting system of Westport should be assessed as to its efficiency and effectiveness and identify changes that will develop the current system. 

Westport should take care that the evaluation of the budgets is done monthly and each division should be responsible or take the responsibility of the results.

  The budgeting system of Westport should be assessed as to its

efficiency and effectiveness and have a tight budget so as to have a goal congruence in the interest of the organization.