Strategic Planning and Managerial Control:
The strategic planning activity concerns long-term decisions and it is characterized by a long-term view, so
for instance, which product the company will sell in the future and with which technology? More precisely,
it consists in selecting organization goals, predicting results under various alternative ways of achieving
these goals, and then deciding how to attain the desired goals. It is usually made by the CEO, together with
the board of directors.
On the other hand, the managerial control deals with monitoring the management variables over a short
period (one-year cycle). It plans the activity of the manager for one year and with the achieved result, the
company should be able to reach the goals in the strategic plan. It verifies the current goals and also the
strategic goals of the future. It works coherently with the long term goals defined by the CEO in the
strategic planning activity.
The Managerial Control Mechanism:
The managerial control mechanism is a feedback system:
1. Managers of the company agree about the target, they define the goals for each managerial area
(usually to be achieved within one-year, annual goals) through budgeting.
2. There is the moment in which actions are carried out, managers make decision and do actions.
During this period, the managers control works, it measures the progresses, the results and
calculates variances between the previous goals and the actual results achieved; so, in this way it is
possible to understand the causes of this variances and where to act in order to improve the
3. Determine necessary correction and to apply them on goals or on action.
SEPT N - 1 This process starts before the beginning of the financial year (usually in September) in the so-
called “Preventive Control Phase” or “Planning Phase”; here the goals are established before the starting
of the year.
GEN N Then there is the “Current Control Phase”, providing managers with information about the results
they are progressively achieving to improve decision and results, till the 31 of December.
END OF N There is the “Consumptive Control Phase” after the 31 of December, to make the evaluation
and rewarding of the managers, we can say if managers have done a good job. This information is given to
the Human Resources Area in order to support it to make evaluation on managers.
General Firm’s Structure: CEO
Marketing and Human
R & D Purchase ICT Quality CFO*
Manufacturing Selling Resources Financial Managerial Corporate
Accounting Accounting Finance
The person in chief of the Manager Control System, that coordinates and organizes it, is situated in the
CFO*(Administration, Finance and Control Area), it is called the controller and it is chief of the
Management Accounting Process.
So, the controller has the duty to control goals and their achievement, examine results and the differences
between them and the original goals, identifying variances.
Control means monitoring, to deal with management accounting and financial accounting.
The Technical and Accounting Tools used in Managerial Control:
There are several accounting techniques:
• General Accounting and Financial Statement Analysis: they are very useful also in managerial
accounting, in fact through these techniques we are able to collect financial information about the
past between the company and third parties (i.e. actual costs, actual revenues, actual credits etc…)
Very useful to know the actual trend of the company, but not sufficient for the aims of
management accounting, because this requires also more analytical information about the
company and the units in which the company can be articulated.
• Cost Accounting: this is an analytical tool, because trough this technique the manager can know
the analytical cost of something that stays into the company (i.e. how much does a single pizza
cost) during both the preventive phase, as a target cost, and in the current and consumptive
phases, as the actual cost achieved. These data are not implied in the general income statement
(by nature) where costs are classified under some aggregations.
• Budgeting System: is an accounting tool, we will arrive to build a budgeted income statement and a
budgeted balance sheet for instance. It has been developed to plan goals, actions and use of
resources for the financial year, in the preventive control phase. The budget is a quantitative
expression of a proposed plan of action by management for a specific period and is an aid to
coordinating what needs to be done to implement that plan.
• Managerial Reporting: is another tool, that support managers during above the second and third
phase in the managerial control process, where variations between goals and results are evaluated,
with respect of every year but also every month.
• Non-economic Information: the most recent report includes on one side the financial information
(short-run oriented) and on the other side the non-economic information (long-run oriented)
Accounting System Non-
So, the Managerial Reporting bring us to a Balance Scorecard: kind of reporting in which finance indicators
balanced perfectly with the non-financial indicator (so short-run is integrated with the long-run prospective
and his strategic goals). 5
Cost and Cost classification:
A cost is a monetary amount that the firm has to burden itself in order to achieve a product or a service in
order to be able to generate revenues or to achieve a specific goal.
We should distinguish between Actual Cost and Budgeted Cost.
Budgeted Cost: so, cost we should spend in order to be efficient in the future.
Actual Cost: cost already registered, spent.
Cost Objects: objects in which the company is interested in determining the cost; for instance, determining
the cost of a product could help in deciding whether continuing to produce it or not. Some examples are
finished products, various departments, plants, customers, processes, geographical area where the
company sell. In fact, only knowing the costs of certain objects is easy to make decisions.
Cost Accounting: it is a system that allows managers to determine all various costs, its aim is to assign to an
object costs classified by nature in general accounting; it is divided into two phases: cost accumulation and
1. COST ACCUMULATION is the gathering of all the costs day by day, collecting everyday cost
2. COST ASSIGNMENT consists in to the assignment all the accumulated costs to a specific product. I
have to distinguish costs to the different cost objects; for some of them it is very easy, for others, it
is more difficult, because we are not able to establish theirs physical and objective cost:
a. DIRECT COST: can be traced to the cost object in an objective and economically feasible
way; I exactly know the quantity of that product and I exactly know the purchasing price for
that cost tracing
i.e. raw materials, direct labour costs, leasing of one equipment that produces just one
product of the company.
b. INDIRECT COST: cannot be traced to the cost object in an objective way or in an
economically feasible way (maybe it is too much expensive to measure even if there is an
objective way) cost allocating
i.e. light expense, compensation of the CEO, depreciation of equipment that produce every
product, rent of a building in which different products are manufactured, some indirect
Costs strictly linked to the characteristic activity of the company, to its core business that is the production
and distribution of products, direct manufacturing labour costs (the amount of manpower involved in the
production process) and manufacturing overhead costs (depreciation, salaries of indirect workers such as
So, they consist in resources consumed in the operating area during the transformation process of input in
Pay attention, the wage of the employees involved in the production is an operating cost.
Are those directly involved in manufacturing of products and services:
• Direct material costs Prime cost
• Direct man labour costs Conversion cost
• Manufacturing overhead costs 6
Are those not incurred in manufacturing of products and services:
• Marketing and selling costs
• Administrative costs
• Innovation costs
They are typically linked to the administration and finance area, so resources consumed in the non-
operating areas (fiscal, participations and financial costs).
Direct material costs Prime
Direct manufacturing labour costs Conversion
Manufacturing costs Manufacturing overhead costs costs Indirect
OPERATING Marketing and selling costs
Non-manufacturing costs Administrative costs
COSTS Financial costs
NON-OPERATING Fiscal costs
Period costs: costs not assigned to a product and related to a specific period, which are included in the
income statement (i.e. advertisement costs).
Product costs: are assign to the finished products of the company in order to determine the value of the
inventory and of this product, usually they are variable + fixed manufacturing costs (i.e. depreciation).
Another classification of costs, probably the most important one, is based on the costs’ behaviour in
comparison with volume of units produced by the firm.
Variable costs increase proportionally with the number of goods; therefore, their graph is represented by a
straight line starting from the axes’ origin with angular coefficient equal to the unitary variable costs*; raw
materials are a typical example of variable costs. Direct manufacturing labour is a variable cost too, even
though this is true in the case of increasing production volume, as law doesn’t allow to fire easily
+1 anno fa
I contenuti di questa pagina costituiscono rielaborazioni personali del Publisher Friz28 di informazioni apprese con la frequenza delle lezioni di Financial and management accounting e studio autonomo di eventuali libri di riferimento in preparazione dell'esame finale o della tesi. Non devono intendersi come materiale ufficiale dell'università Torino - Unito o del prof Culasso Francesca.
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