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Unformatted text preview: ery inefficient and may have the undesirable
outcome of forcing management to make decisions based on incomplete information. Increasingly,
companies are developing customized electronic data base systems that capture data and store it in
such a way as to enable accurate and real time retrieval of information relevant to an almost endless
number of potential questions. 1.9 Traceable Versus Common Fixed Costs
You likely noticed that the above reports separated out variable and fixed expenses. The fixed
expenses were further divided between those that were traceable to a specific business unit and
common fixed costs. Traceable fixed costs would not exist if the unit under evaluation ceased to
exist. Common fixed costs support the operations of more than one unit. Great care must be taken in
distinguishing between traceable and common fixed costs. Remember that effective performance
evaluations require a clear alignment of responsibility and accountability. To the extent a unit
manager is burdened with allocations of common costs, poor signaling of performance can result.
This is why such costs are usually segregated out in performance based reporting methods. This
topic will be further explored in the next chapter’s discussion of segment reporting. Download free ebooks at bookboon.com
14 Responsibility Accounting and Management by Exception Tools for Enterprise Performance Evaluation 1.10 Management by Expansion
“Underperforming stores are identified, problems are studied, and corrective measures are taken.
Very little time is spent on locations that are meeting or exceeding corporate profit goals.” These
sentences are taken directly from the preceding discussion about how the senior manager of store
operations uses the performance reports. This is an excellent illustration of what is meant by the
concept of management by exception. The objective of management by exception is to focus
attention on areas where corrective measures appear necessary. Performance evaluation tools that do
not satisfy this objective are of little value. Importantly, not every exception requires a remedy. One
characteristic of a strong manager is the ability to study problems, and differentiate between those
requiring a solution and those that simply happened because of bad luck. 360°
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thinking . Discover the truth at www.deloitte.ca/careers © Deloitte & Touche LLP and affiliated entities. Discover the truth at www.deloitte.ca/careers © Deloitte & Touche LLP and affiliated entities. Download free ebooks at bookboon.com
Discover the truth at www.deloitte.ca/careers © Deloitte & Touche LLP and affiliated entities. © Deloitte & Touche LLP and affiliated entities. D Flexible Budgets Tools for Enterprise Performance Evaluation 2. Flexible Budgets
2. Flexible Budgets
The previous chapter provided a comprehensive budget illustration using a static budget. The static The previous which is developed for a single level of acti...
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