The Planning Calendar Timing of planning activities suggests that there should be definite management time schedule established

for initiating and completing be a definite management time schedule established for initiating and completing certain phases of the planning process. Certain aspects of planning are best accomplished in a formal way and on definite time schedule. For example, exhibit 2-6 depicts a one five plan that requires the development of annual short- and long-range profit plans. It suggests that there should be a schedule of planning activities as a matter of management policy, frequently referred to as the planning calendar of planning cycle. In organization when it was previously almost impossible to assemble management groups intact for planning session, it was found that after adoption of a planning calendar, the planning sessions were usually given top priority. MANAGEMENT CONTROL USING PCC The purpose of control is to ensure attainment of objectives, goals, and standards of the enterprise. Comprehensive profit planning and control focuses on performance reporting and evaluation of performance to determine the causes of both high and low performance. Characteristics of a PPC performance report : 1. Performance is classified by assigned responsibilities. Report must be in exact conformity with the organizational structure. 2. Controllable and noncontrollable items are designated. Must be clearly differentiated because the managers performance must be measured fairly. 3. Time reports are issued. Performance should be report issued for interim time periods. 4. Emphasis is given to comparison actual resulted and planned results. Report should designate to responsible manager and show actual results, planned results, and the difference between variances. Responsibility Accounting This system is one of the fundamentals of PPC. See exhibit 2-7. Accounting system must be designed to provide financial information separately for each organizational unit( by assigned authority and responsibility.

Primary accounting structure secondary classification of costs, revenues, and other relevant financial data may be used to meet the needs of enterprise.

Historical cost accounting has two main objectives with respect to financial data : 1. Determine revenues 2. Provide relevant revenue and expense data for planning and control costs. Cost accounting has been focused more on determining the cost of product than on planning and control. Cost and revenue planning and control receive the primary emphasis. It doesnt imply the product costing will be less accurate. Cost initially accumulated for control purpose can be recast for product costing purpose. Initiating a profit planning and control program found it necessary to analyze all aspects of the accounting system carefully, with consequent reorganization of system on a responsibility accounting basis. Activity Costing Responsibility accounting systems generally accumulate costs by department, and product-costing system associate costs with units of product or service. By decomposing an organizations product process into a discrete set of activities, and then associating costs with each of those activities, management is in a better position to determine costs and benefits of continuing the activities. An activity cost analysis can assist managers in eliminating redundant activities that are not cost-benefit effective, and achieving greater coordination among the activities that remain. See the article page 43 Zero-Base Budgeting It is has been used by many organizations-both private organizations and governmental units. This concept is describe in the following excerpt from a Management Accounting Article. ( see article page 43-44) Some organization find that the concept starting from a zero point in budget construction is too unrealistic to be useful. They use a percentage-base budgeting approach, where in some percentage of current expenditures is chosen as the base.

For example 70 percent level is chosen (preceding years budget). Activities would still be performed at 70 % level of funding. Detailed activity analysis is then conducted on their activities that constitute the other 30% of the preceding years budget. Application of the Exception Principle A comprehensive profit planning and control program facilities control in many ways; measurement and reporting of actual performance against planed objectives, goals, and standards and reporting of that measurements in performance reports that involve : 1. Actual result, 2. Budgeted or planned result, 3. The differences ) performance variations) between two. The type of reporting represents an effective application of the wellrecognized management exception principle. out-of-line items that need immediate managerial attention to determine the causes and to take corrective action. The items that are not out of line need not utilize extensive management time; however they should trigger rewards in appropriate ways. Technique and procedures must be adopted to call the managers attention the out-of- control items. Conventional accounting reports tend to present a mass of figures with no basis for calling attention to the unusual or exceptional items. Alternatively, performance reports, because they include a comparison of actual result with plans by areas of responsibility, emphasize in a relevant way performance variations. The traditional accounting approach has been that of comparing current actual results of some past period. A comparison of actual results for the current period with actual result of a period does not reliable standard does provide a valid measurement. Comparison with actual results of a prior period is insufficient: 1. Condition may have changed-reorganization, new product , new methods, price changes volume differentials, technological improvements, increase labor efficiency; 2. Accounting classification may be different; 3. Performance in the prior period may have been unsatisfactory. The profit planning and control approach makes it possible for management to feel the pulse of the enterprise throughout the year and to know specifically where there is satisfactory or unsatisfactory progress toward the companys objectives and goals. ORGANIZATIONAL ADAPTION TO PCC A profit planning and control pro clear- cut lines of authority and responsibility. The purpose of organizational structure and the

assignment of authority is to establish a framework within which enterprise objectives may be attained in a coordinated and effective way on accounting basis. The scope and interrelationship of the responsibilities of each individual manager are specified. These subunits are often referred to as decision centers or responsibility centers. Although the latter term is widely used, the former is more descriptive of the primary focus that is most fundamental. A responsibility center ( or decision center) can be defined as an organizational unit ( or subunit) headed by a manager with specified authority and responsibility. Responsibility centers are further classified in respect to the extent of responsibility as follows : 1. Cost center a responsibility center of which a manager is responsible for the control label costs incurred in the subunit but is not responsible, in a financial sense, for profit or investment in the center. The lower level and smallerresponsibility centers tend to be cost centers. 2. Revenue a responsibility center for which the manager is a responsible fo revenue. Sales districts are often designated as revenue centers. 3. Profit centera responsibility center for which the manager is responsible for the revenue, costs, and profits of the center. Planning and control focuses on the centers profit. 4. Investment centera responsibility center that goes one step further than a profit center. In an investment center, the manager is responsible for revenue, costs, profit, and the amount of resources invested in the assets used by the center. Planning and control focuses on the return on investment earned by the center. Organizational subunits, whether cost, revenue, profit, or investment centers, are variously labeled as subsidiaries, divisions, departments, plants, business units , districts, and function. A comprehensive profit planning and control program must be tailored to the organizational subunits and related structural characteristics of the enterprise. In harmony with this frame of reference, the goals and plans of the several responsibility centers aggregate to the goals and plans for the enterprise as a whole. As a result, comprehensive profit plans normally are developed each as follows :

1. Top management specifies entity objectives, goals, strategies, planning, assumptions (premises), and guidelines that are communicated to the managers of the subunits. 2. The manager of each subunit, conforming to the broad guidelines, develops his or her own segment of the comprehensive profit plan. 3. The manager of each subunits presents the subunits presents the subunits profit plans to top management for critical review, evaluation, and suggested revisions when aprotiate. 4. The plans of each subunit, as approved by higher management, are then consolidated into the comprehensive profit plan for the entire company. Subsequent discussion in this book will emphasize the necessity of relating planning and control functions to the assigned authorities and responsibilities of the various subunits of an enterprise. A responsibility center ( or decision center) can be defined as an organizational, unit ( or subunit ) headed by a manager with specified authority and responsibility. Department Versus Department Managers In a responsibility accounting system, it is important to distinguish between departments and department managers. In evaluating the manager of a profit center, for example, only those costs and revenues that the manager controls or significantly influences should be used in the evaluation. However, in evaluating the economic viability of the profit center itself , all costs and revenues that are traceable to the center should be used in the evaluation. COORDINATION USING PPC Some management authorities list coordination as a separate function of management ; however, most view it as an effect that ening, and controlling are accomplished. Coordination is the synchronization of individual actions with the result that each

subdivision of an entity effectively works toward the common objectives, with due regard for all other subdivisions and with unity of effort. Such a result is often reffered to as goal congruence. Frequently, a lack of coordination in an enterprise is apparent when an aggressive department head is permitted to expand the department out of proportion to others or to base major decisions on the specific needs of the department only , although the decision may negatively affect other departments and alter their effectiveness. Coordination involves the interpersonal relationships of people in the work situation as they exchange views, technical expertise, gossip, and attitudes. When managers at levels understand how their particular functions contribute to the overall enterprise objectives, a basic foundation for coordination is established. It is important that each member of management, from the top to the lowest level, knows well in advance what is planned and how, when, and by whom it is to be accomplished. Communicationdownward, upward, and horizontally --- is fundamental to coordination.