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Why is goal congruence important to an organization's success? How does a responsibility accounting system foster...

Why is goal congruence important to an organization's success? How does a responsibility accounting system foster goal congruence?  

Describe the relationship between performance reports and flexible budgeting.

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A responsibility-accounting system fosters goal congruence by establishing the performance criteria by which each manager will be evaluated. Development of performance measures and standards for those measures can help to ensure that managers are striving toward goals that are supportive of the organisation's overall

Goal congruence is important to achieve the organization's goals set by top management. Delegation of decision making is done for quick decision making and to take the advantage of expertise or skills of sub unit managers. The managers of each sub unit are made responsible for the financial performance of their unit.

The following are some crucial steps to achieving goal congruence.

  1. Know The All-Important Goals. Goal congruence is about the alignment of objectives, but perfect alignment is normally impossible.
  2. Set Achievable Targets.
  3. Reward And Retain.
  4. Create A Happy Work Environment.

A flexible budget performance report is used to compare actual results for a period to the budgeted results generated by a flexible budget. This report varies from a traditional budget versus actual report, in that the actual sales figure is plugged into the budget model, which then uses formulas to alter the budgeted expense amounts. This approach results in budgeted expenses that are significantly more relevant to the actual performance that an organization experiences.

If the flexible budget model is designed to adjust to actual sales inputs in a reasonable manner, then the resulting performance report should closely align with actual expenses. This makes it easier to spot anomalies in the report, which should be rare. Management can then focus on the significant variances to see if any actions should be taken to ensure that actual results remain close to expectations.

For example, ABC International has adopted a flexible budget model, in which the cost of goods sold should be 25% of sales. In the most recent period, actual sales were $1,000,000. When this figure is input into the model, it generates a budgeted cost of goods sold of $250,000. The actual cost of goods sold was $260,000. This information is inserted into the accounting department's flexible budget performance report, where the cost of goods sold line item shows a $10,000 unfavorable variance.

The flexible budget model and its related reports are a significant improvement over the more common static model, where there is only one version of a budget, and that budget does not change. When a static model is the basis of comparison, the likely outcome is large favorable and/or unfavorable variances for many line items, since the static model may have been based on a sales level that is no longer relevant to actual conditions.

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