Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning Internal reporting allows managers to:

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning Small business: e.g. examining cash position against budget every two weeks. Perhaps a simple monthly performance report will be produced. Slightly larger business: more complex techniques required. Large business: likely to employ staff in a management accounting department, producing a wide range of reports.

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning Characteristics of management information

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning Divisions may be established by: Function Geographical location Both Divisions operate with varying degrees of autonomy

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning ADVANTAGES OF DECENTRALISATION Autonomy in decision-making - leading to flexible and rapid response Provides managerial motivation Can generate healthy competition between divisions

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning ADVANTAGES OF CENTRALISATION Business operations remain under close scrutiny and control of senior management No inter-divisional rivalries Cost savings can be made by centralising services such as accountancy and marketing

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning Three levels of divisional autonomy: Cost centre Profit centre Investment centre

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning Divisional performance should be assessed only in respect of costs, because revenue is beyond the control of divisional management

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning Performance can be assessed by using a profit and loss account statement. A divisional performance statement should distinguish between controllable and non-controllable costs

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning Example of a divisional performance statement

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning Managers control costs, revenue and the level and nature of capital investment. Investment centre performance can be assessed by using: Return on Investment (ROI)

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning ADVANTAGES OF USING ROI:

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning PROBLEMS IN USING ROI Determining profit Possible transfer pricing problems Determining investment in net assets (incentive to management to delay investment)

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning Example: assessing quality and service standards

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning Kaplan and Norton

Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN © 2005 Thomson Learning