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ADVANCED MANAGEMENT ACCOUNTING A firm of solicitors is using budgetary control during 2018. The senior partner estimated the demand for the year for each of
ADVANCED MANAGEMENT ACCOUNTING
A firm of solicitors is using budgetary control during 2018. The senior partner estimated the demand for the year for each of the firm's four divisions: Civil, Criminal, Corporate, and property. A separate partner is responsible for each division, Each divisional partner then prepared a cost budget based on the senior partner's demand estimate for the division. These budgets were then submitted to the senior partner for his approval. He then amended them as he thought appropriate before issuing each divisional partner with the final budget for the division. He did not discuss these amendments with the respective divisional partners. Actual performance is then measured against the final budgets for each month and each divisional partner's performance is appraised by asking the divisional partner to explain the reasons for any variances that occur. The Corporate partner has been asked to explain why her staff costs exceeded the budgeted costs for last month while the chargeable time was less than budgeted. Her reply is below: "My own original estimate of staff costs was higher than the final budgeted costs shown on my divisional performance report. In my own cost budget, I allowed for time to be spent developing new services for the firm's corporate clients and improving the clients' access to their own case files. This would improve the quality of our services to clients and therefore increase client satisfaction. The trouble with our present system is that it focuses on financial performance and ignores the other performance indicators found in modern performance management systems. REQUIRED: a. b. Analyze the present budgeting system and its likely effect on divisional partner motivation. (10 Marks) Explain two non-financial performance indicators that could be used by the firm. (6 Marks) Many experts argue that organizations should manage by using activity data rather than cost data. Evaluate by giving THREE (3) reasons. (9 Marks)Step by Step Solution
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