Question

What are some ways in which organizations can assess the cost of establishing a management control system?

Answer 1

Management control system:-

A management control system (MCS) is a system which gathers and uses information to evaluate the performance of different organizational resources like human, physical, financial and also the organization as a whole in light of the organizational strategies pursued.

There are five parts to an effective cost control system. These are:-

a) preparation of budgets

b) communicating and agreeing budgets with all concerned

c) having an accounting system that will record all actual costs

d) preparing statements that will compare actual costs with budgets, showing any variances and disclosing the reasons for them, and

e) taking any appropriate action based on the analysis of the variances in d) above.

The cost of establishing a management control system;-

1. Develop reasonably accurate product costs
2. Assess product/service life-cycle performance
3. Improve understanding of processes and activities
4. Control costs
5. Measure performance
6. Allow pursuit of organizational strategies