anances d. Measuring acrual costs 12. LO.1 (Management control systems; writing)
ID: 2578036 • Letter: A
Question
anances d. Measuring acrual costs 12. LO.1 (Management control systems; writing) A few years after graduation, Ibra- him and four of his friends from college organized an engineering consulting business called 5Q. All five individuals had earned degrees in engineering fields and were anx- ious to pool their expertise and work together in a successful business venture. Even though the business was very successful in attracting clients, the business failed within rwo years of its founding because the entrepreneurs were unable to control their costs Discuss how the adoption of management controls could have improved the odds that the business would have been successful. 13. LO.2 & LO.3 (Cost management and strategy) As a financial analyst you hExplanation / Answer
5Q could have increased the chances of it being successful if it had adopted and implemented management control systems. Management control systems are considered to be detrimental to entrepreneurial spirit. But this is a myth and in reality presence of management control systems helps an entrepreneurial venture and a start up to realize their growth potential.
Management control systems are set of practices that a particular organization employs for controlling its activities. It supports and strengthens managerial decisions and makes them more effective. When management control systems are used and implemented then entrepreneurial ventures are able to compare actual progress to plan, compare actual costs to budget. Management control system ensures that there is no mismatch in demand and supply of information, in quantity and quality. This ensures that all unnecessary costs are avoided and there is no deviation in focus of the management. Management control systems employ robust methods of cost control.
5Q could have used control systems and practices like balanced scorecard, budget based on activities, intended cost or target cost and profitability analysis to keep its costs in control.
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