Presentation on theme: "Strategic Control Control is taking measures that synchronize outcomes as closely as possible with plans Traditionally, has been almost completely based."— Presentation transcript:
1Strategic ControlControl is taking measures that synchronize outcomes as closely as possible with plansTraditionally, has been almost completely based on financial performanceHence, top internal accounting officer became the “In Charge” official for organization control policies and proceduresWhat do we call the chief accounting officer of an organization?Answer: The ControllerFinancial Information was primary sourceRewarded EfficiencyEncouraged Dysfunctional Behavior
2Strategic Control Strategic Control Methods Integrates Quantitative & Qualitative MeasuresUses Financial and Non-financial informationCustomer (External) focusRewards based upon relative contributions to organization successEncourages desired organizational behaviorImplementingPlanningControl CycleMeasuringAdjusting
3Strategic Control and Control Systems Should motivate people toward desired organizational behavior rather than promote dysfunctional behavior Traditional1990’s thru 21st CenturyCustomer SatisfactionNew Product Development RatesOutcomesQuantitative & Qualitative PerformanceMeeting BudgetProduction EfficiencyInputsQuantitative Performance(Mostly Financial)What is Measured?
4Responsibility Centers Cross-Functional People Who is evaluated?1990’s thru 21st CenturyTraditionalIndividualsFunctionsResponsibility CentersIndividualsTeams (Groups)Cross-Functional People
5Overall Company Performance Basis of Rewards control SystemsTraditional1990’s thru 21st CenturyEfficiencyProfitsROIQualityInnovationCreativityOverall Company Performance
6Focus of Contemporary Control Systems Traditional1990’s thru 21st CenturyInternalMacro EnvironmentIndustry EnvironmentInternal
7Capacity ManagementCapacity is the potential or capability, of a set of resources to do work of some type to create value for the customer.Importance of capacity management (control) of organizationsHuge initial outlaysSunk costsInflexibleLong-run costsMostly Fixed CostsGoal of capacity management is to manage fixed costs (plant assets) in a manner that spreads costs over the largest possible volumeA very difficult area of management because it involves long-range planning
8Strategic Control of Capacity Must have right amount of capacity to produce to customer demands*If there is excess capacity fixed costs must be spread over fewer units therebymaking the units cost more*If there is insufficient capacity the company must incur additional costs togenerate more capacity
9A Capacity Management Example Company A and Company B each manufacture one product that is very similar in nature. Company A recently invested in modern machinery (new technology) that reduces its manufacturing labor cost. Company B continues to be labor intensive using its older machinery. Accordingly, Company A has much more fixed factory overhead annually than Company B ($ 1,500,000 compared to $ 600,000). The respective selling price and variable costs per unit are as follows:Company ACompany BSelling Price $ $20.00Direct Mat $ $2.00Direct Labor $ $6.00Var. Overhead $ $1.00Required: Compute the gross margins on the product of each company. Assume an annual volume of production and sales of 100,000 units; then 200,000 units.
10Solution: (100,000 Units) Company A Company B Cost: Variable Costs/Unit $4.00 $9.00Fixed Cost/UnitTotal Cost/Unit $ $15.00Selling Price $ $20.00Total Gross Margin $100, $500,000(200,000 Units)The only Change is Fixedcosts per unit $ $3.00Total Gross Margin $1,700, $1,600,000