Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 51

Control of Operating Processes/Nonfinancial Performance Indicators This chapter deals with the design of effective control systems associated with business, including operating, processes. As indicated in the text, a comprehensive management accounting and control system will have both financial indicators and nonfinancial performance indicators. Financial indicators can include the operating-income variances that can be calculated each period by using standard costs and flexible budgets. This question deals with the use of nonfinancial performance indicators as a complement to the financial-performance indicators that are useful for controlling operating processes.

Required

1. List and define the primary business processes in which organizations engage in their attempt to meet customer expectations.

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2. Fundamentally, control systems (including management accounting and control systems) collect information regarding the extent to which specified objectives are being accomplished. For each of the operating processes identified in (1), provide a listing of possible objectives that the organization might pursue. For each listed objective, provide one or more relevant nonfinancial performance indicators (performance metrics) that the organization’s management accounting and control system might collect and report to management.

Step 1 of 5

Standard Cost System and Direct Cost Variance:

A standard cost system is a tool for arranging financial plans, overseeing and controlling expenses, and assessing cost the board execution. A standard costing framework includes assessing the necessary expenses of a creation cycle.

Direct Cost Variance (DCV), is the distinction between the standard expense for real creation and the real expense underway. There are two sorts of work differences. Work Rate Variance is the distinction between the standard expense and the genuine cost paid for the real number of hours.