ch12 - Chapter 12 Introduction to Cost Management Systems...

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Chapter 12 Introduction to Cost Management Systems Questions 1. The only realistic method of evaluating whether costs are being effectively managed is to compare the benefits generated with the costs incurred. This approach is equivalent to evaluating the costs incurred relative to the objectives that were to be accomplished from incurring the costs. 2. A control system is a tool to aid managers in steering an organization to the achievement of its goals. A control system has four components: a detector, an assessor, an effector, and a communications network. A control system exists to keep an organization’s actual operations in line with its plans and strategies. 3. Organizations typically have goals and objectives for both the short and long terms. Consequently, organizations must have control systems in place to ensure that both short- and long-term targets are achieved. For businesses, one important short-term goal is to achieve profits, and a long-term-goal is to remain solvent and viable. 4. Every organization is unique in its objectives, constraints, culture, strategies, and structure. Because all of these variables are important determinants of the configuration of a cost management system, every organization requires a unique cost management system. 5. Organizational form influences the cost management system design in several ways. For example, organizational form determines, in part, who in the organization is empowered to make decisions. Also, the organizational form determines whether certain costs will be incurred (e.g., federal income taxes) and, whether those costs affect other costs such as the cost of acquiring public or private capital. 6. Core competencies are activities a firm must execute well to survive. Information useful in assessing core competencies would include benchmark data from competing firms or other firms, historical performance data, intelligence regarding actions likely to be taken by competitors, and measurement systems to capture performance in areas of core competencies. 7. Organizational culture can be an effective control device. A culture is a reflection of the values and practices that are acceptable or preferred by the company. The mere existence of the culture deters certain undesirable practices and encourages other practices. The culture can be perpetuated by hiring people who have values that are consistent with the culture. In this manner, the culture is perpetuated and the employees have homogeneous beliefs regarding behaviors. 21
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Chapter 12 8. The life-cycle stage determines which costs are important and which costs are controllable. For example, in the design stage, no production costs are being incurred; so, a focus on production costs would be ineffective and inappropriate. Instead, the focus should be on research and development costs and product design costs.
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ch12 - Chapter 12 Introduction to Cost Management Systems...

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