Performance measurement is the monitoring of
budgets or targets against actual results to
establish how well the business and its employees
are functioning as a whole and as individuals.
Performance measurement is a very important
aspect of management accounting which involves
setting targets, measuring the actual performance
against those targets and providing information to
management regarding the outcome. This
information will be used by management to make
decisions about the organisation.
Performance measurement affects
behavior which in turn affects performance
targets and the interest of the organization
as a whole.
Performance can be measured at an
individual, departmental or organisation
level and the types of measurements used
will depend on the area being measured.
Responsibility accounting
In responsibility reporting, costs and revenues are grouped according to which individual
manager or management team is responsible for their control.
Here are some important keywords to remember:
● Cost centre - managers might be
interested in assessing the costs incurred
by a particular responsibility centre within
their area.
● Profit centre - managers might be
interested in assessing the profitability of a
particular product or service, in which case,
costs might be classified by nature so that
they can be traced to individual products or
services.
● Investment centre - managers will be interested in assessing the return being made by
a product or service centre in relation to the capital outlay for that product or service.
BA 2 - Performance measurement. Quantia Learning
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