Confirming Pages

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chapter thirteen
Managerial Control

IN A NUTSHELL
Managerial control goes hand in hand with planning. It ensures that employees
know what is expected of them and that their progress will be checked to correct
problems and reward accomplishments.

The following questions will test your take-away knowledge from this chapter. How many can you answer?

LO.1. Why do companies develop control systems for employees?

LO.2. Can you summarize how to design a basic bureaucratic control system?

LO.3. What are the purposes for using budgets as a control device?

LO.4. Can you define basic types of financial statements and financial ratios used as controls?

LO.5. What are the procedures for implementing effective control systems?

LO.6. Can you identify ways in which organizations use market control mechanisms?

LO.7. How is clan control used in an empowered organization?

Copyright © 2011 by The McGraw-Hill Companies. ISBN 0077357795 Bateman M 2e

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Did your answers include the following important points?
LO.1. Why do companies develop control systems for
employees?
• Companies develop control systems so employees know what is
expected of them and that their progress will be checked.
• Control systems allow organizations to ensure that they are meeting
planned goals.
LO.2. Can you summarize how to design a basic bureaucratic
control system?
• To develop a bureaucratic control system, an organization needs
to set performance standards, measure performance, compare
performance against the standards and determine deviations, and
take action to correct problems and reinforce success.
LO.3. What are the purposes for using budgets as a control
device?
• Budgetary control is one of the most widely recognized and
commonly used methods of managerial control.
• Budgetary control finds out what is being done and compares the
results with data in the plans to verify accomplishments or remedy
differences.
LO.4. Can you define basic types of financial statements and
financial ratios used as controls?
• Balance sheets show the financial picture of a company at a given
time and itemize assets, liabilities, and stockholders’ equity.
Practical Application
LO.1.
• Lax management and an absence of policies are signs that a
company lacks ___________.
• Any process that directs the activities of individuals toward the
achievement of goals is called ___________.
LO.2.
• A/an ___________ is expected performance for a given goal.
• A managerial principle stating that control is enhanced by
concentrating on the significant deviations from the expected result
or standard is called the ___________.
• Ely thinks it is important to set policies, procedures, and rules before
operations begin to ensure that plans are carried out properly. Ely
believes in ___________.
• An evaluation conducted by one organization, such as a CPA firm,
on another is known as a/an ___________.
LO.3.
• ___________ is the process of investigating what is being done and
comparing the results with corresponding financial data to verify
accomplishments or remedy differences.
• Procedures used to verify accounting reports and statements are
called ___________.
• ___________ is a method of cost accounting designed to identify
streams of activity and then to allocate costs across particular
business processes according to the amount of time employees
devote to particular activities.
LO.4.
• A report that shows the financial picture of a company at a given
time and itemizes assets, liabilities, and stockholders’ equity is
called a/an ___________.
price LO7• Clan control • the employment relationship has changed
• Activity-based costing (ABC) LO4• balance sheet • Assets/liabilities • management myopia LO5• objective • laziness/frivolity • balanced scorecard LO6• market control • transfer
ANSWERS LO1• controls • control LO2• standard • principle of exception • feedforward control • external audit LO3• Budgeting or Budgetary controlling • accounting audits
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Confirming Pages
• Profit and loss statements itemize the income and expenses of a
company’s operations.
• Key financial ratios, such as liquidity, leverage, and profitability
ratios, suggest a company’s strengths and weaknesses.
LO.5. What are the procedures for implementing effective
control systems?
• Managers can implement effective control systems by ensuring
that the systems are based on valid performance standards,
communicate adequate information to employees, are acceptable to
employees, use multiple approaches, and recognize the relationship
between empowerment and control.
LO.6. Can you identify ways in which organizations use
market control mechanisms?
• Organizations use market controls to determine prices and profits
through supply and demand.
LO.7. How is clan control used in an empowered
organization?
• Clan control relies on frontline decision making and strong
relationships developed as a result of the organization’s culture to
direct today’s employees.
• ___________ are the values of the various items the corporation
owns; ___________ are the amounts a corporation owes to various
creditors.
• Alice’s manager only cares about short-term earnings, not long-
term strategic obligations. You could say Alice’s manager has
___________.
LO.5.
• Valid performance standards are expressed in quantitative terms,
are ___________, and are difficult to sabotage or fake.
• The seven “deadly sins” of performance measurement to avoid are
vanity, provincialism, narcissism, ___________, pettiness, inanity,
and ___________.
• A/an ___________ is a control system that combines four sets of
performance measures: financial, customer, business process, and
learning and growth.
LO.6.
• Control based on the use of pricing mechanisms and economic
information to regulate activities within organizations is called
___________.
• A/an ___________ is a price charged by one unit for a good or
service provided to another unit within the organization.
LO.7.
• ___________ is control based on the norms, values, shared goals,
and trust among group members.
• Bureaucratic and market controls are insufficient to direct today’s
workforce because employees’ jobs have changed, the nature of
management has changed, and ___________.
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