Department of Finance

University of Dhaka
Accounting for Managerial Control
Report

Submitted To:
Dr.H.M Mosarof Hossain
Professor
Department of Finance
University of Dhaka

Submitted By
Tanzila Mahzabin
Fin -07-18-030
01. Absorption costing
Ans: Absorption costing is a method of product costing which aims to include in the total
cost of a product (unit, job, and so on) an appropriate share of an organization’s total
overhead, which is generally taken to mean an amount which reflects the amount of time
and effort that has gone into producing the product. It is a cost accounting method for
valuing inventory. Absorption costing includes or “absorbs” all the costs of manufacturing
a product including both fixed and variable costs. That means that all costs including
direct, like material costs, and indirect, like overhead costs, are included in the price of
inventory. Absorption costing gives a much more comprehensive and accurate view on
how much it really costs to produce your inventory then the variable costing method

02. Variable costing

Ans: Variable costing, also called direct costing, is an accounting method used to allocate
production costs to product being produced. This method allocates all variable-
manufacturing costs to the product during the period.

Mark works as an accountant at a leading manufacturing company that produces

equipment for pediatric private practice. He is asked to calculate the operating income
using the direct costing and the absorption costing methods and compare them. Under the
direct costing method, Mark calculates the variable cost of goods sold at 50% of sales to
find the product margin, and he deducts the variable expenses to find the contribution
margin.

Hence, the fixed manufacturing overheads are allocated against sales during the period in
which they are incurred. Also, variable costs comprise of direct materials, direct labor,
and variable manufacturing overheads. After deducting the fixed costs from the
contribution margin, Mark finds that the company’s operating income is $100,000.

03. Overhead absorption

Ans: Overhead absorption is the amount of indirect costs assigned to cost
objects. Indirect costs are costs that are not directly traceable to an activity or product.
Cost objects are items for which costs are compiled, such as products, product lines,
customers, retail stores, and distribution channels. Overhead absorption is based on a
combination of the overhead rate and the usage of the allocation base by the cost
object. Thus, the allocation of overhead to a product may be based on an overhead
rate of $5.00 per direct labor hour used, which can be altered by changing the number
of hours used or the amount of overhead cost in the cost pool.
04. Activity based costing
Ans: Activity based costing is a managerial accounting method that traces overhead costs
to activities and then assigns them to objects. In other words, it’s a way to allocate indirect,
overhead costs to products or departments that generate these costs in the production
process.

ABC costing focuses on identifying activities, or production processes, that are used to
process a job. These individual activities are grouped together with similar processes into
a cost pool that relates to single activity cost driver.
The cost pools are then analyzed and assigned a predetermined overhead rate that will
eventually be assigned to individual jobs and products.
As you can see, this is a multi-step process, but activity-based costing is a much more
accurate way of assigning indirect costs. It’s difficult to determine how much electricity or
heat one department or job uses over another without some type of methodical allocation
process.

Let’s figure out how much you are spending on utilities to create a product. To do this, you
estimate that your total utility bill is $20,000 for the year.

You determine that the cost driver impacting your utility bill is the number of direct labor
hours worked. The number of direct labor hours worked totaled 1,000 hours for the year.

Divide your total utility bill by your cost driver (the number of hours worked) to get your
cost driver rate. Your overhead application rate is $20 ($20,000 / 1,000 hours).

For this particular product, you used utilities for 3 hours. Multiply the hours by the cost
driver rate of $20 to get $60

05. Target costing

Ans: Target costing is a system under which a company plans in advance for the price
points, product costs, and margins that it wants to achieve for a new product. If it
cannot manufacture a product at these planned levels, then it cancels the design
project entirely. With target costing, a management team has a powerful tool for
continually monitoring products from the moment they enter the design phase and
onward throughout their product life cycles. It is considered one of the most important
tools for achieving consistent profitability in a manufacturing environment

Target costing is not just a method of costing, but rather a management technique wherein
prices are determined by market conditions, taking into account several factors, such as
homogeneous products, level of competition, no/low switching costs for the end
 customer, etc. When these factors come into the picture, management wants to control the
costs, as they have little or no control over the selling price.

CIMA defines target cost as “a product cost estimate derived from a competitive market
price.

Example:

ABC Inc. is a big FMCG player that operates in a very competitive market. It sells
packaged food to end customers. ABC can only charge $20 per unit. If the company’s
intended profit margin is 10% on the selling price, calculate the target cost per unit.

Solution:

Target Profit Margin = 10% of 20 = $2 per unit

Target Cost = Selling Price – Profit Margin ($20 – $2)

Target Cost = $18 per unit

06. Life cycle costing

Ans: Life cycle costing is the process of compiling all costs and revenues that the
owner or producer of an asset will incur over its lifespan. The concept applies to
several decision areas. In capital budgeting, the total cost of ownership is compiled
and then reduced to its present value in order to determine the expected return on
investment (ROI) and net cash flows. This information is a key part of the decision to
acquire an asset. In the procurement area, the purchasing staff seeks to examine the
total cost of ownership of an asset in order to place orders for those items that are the
least expensive, in aggregate, to install, operate, maintain, and dispose of. In the
engineering and production areas, life cycle costing is used to develop and
manufacture goods that will have the least cost to the customer to install, operate,
maintain, and dispose of. In the customer service and field service areas, life cycle
costing is focused on minimizing the amount of warranty, replacement, and field
service work that must be performed on products over their useful lives.

Life cycle costing is more heavily used by businesses that place an emphasis on long-
range planning, so that their multi-year profits are maximized. An organization that
does not pay attention to life cycle costing is more likely to develop goods and acquire
assets for the lowest immediate cost, not paying attention to the heightened servicing
 costs of these items later in their useful lives. et’s say you want to buy a new copier for
your business.

Purchase: The purchase price is $2,500.

Installation: You spend an additional $75 for setup and delivery.
Operating: You need to buy ink cartridges and paper for it, so you estimate you will
spend $1,000 on these supplies over the course of its useful life. And, you expect the total
electricity the copier will use to be $300.
Maintenance: If the copier breaks, you estimate repairs will total $450.
Financing: You purchase the copier with your store credit card, which has an interest rate
of 3.5% per month. You pay off the printer the next month, meaning you owe $87.50 in
interest ($2,500 X 3.5%).
Depreciation: You predict the copier will lose value by $150 each year.
Disposal: You estimate it will cost $100 to hire an independent contractor to remove the
copier from your business.
Although the purchase price of the copier is $2,500, the life cycle cost of the copier could
end up costing your business over $4,500.

07. Throughput accounting

Ans: Throughput Accounting supports a production management system which aims to
maximise throughput, and therefore cash generation from sales. Its aim is to maximise
sales revenue less materials cost, while also reducing inventory and operational expenses.
It is not concerned with ‘traditional’ measurements of profit, or maximization of this
profit. It is an alternative accounting methodology that attempts to eliminate harmful
distortions introduced from traditional accounting practices – distortions that promote
behaviors contrary to the goal of increasing profit in the long term

Throughput is the number of units that pass through a process during a period. This
general definition can be refined into the following two variations, which are:

 Operational perspective. Throughput is the number of units that can be

produced by a production process within a certain period of time. For example, if 800
units can be produced during an eight-hour shift, then the production process
generates throughput of 100 units per hour.
 Financial perspective. Throughput is the revenues generated by a production
process, minus all completely variable expenses incurred by that process. In most
cases, the only completely variable expenses are direct materials and
sales commissions. Given the small number of expenses, throughput tends to be quite
 high, except for those situations in which prices are set only slightly higher than
variable expenses.

For operations, throughput can be increased by enhancing the productivity of

the bottleneck operation that is constraining production. For example, an additional
machine can be purchased, or overtime can be authorized in order to run a machine
for an extra shift. The key point is to focus attention on the productivity of the
bottleneck operation. If other operations are improved, the overall throughput of the
system will not increase, since the bottleneck operation has not been enhanced. This
means that the key focus of investment in the production area shou ld be on the
bottleneck, not other operations.

For financial analysis, throughput can be increased by altering the mix of products
being produced, to increase the priority on those products that have the highest
throughput per minute of time required at the constrained resource. If a product has a
smaller amount of throughput per minute, it can instead be routed to a third party for
processing, rather than interfering with the bottleneck operation. As long as some
positive throughput is gained by outsourcing, the result is an increased overall level
of the throughput for the company as a whole.

08. Cost driver

Ans: A cost driver is the unit of an activity that causes the change in activity's cost. Cost
driver is any factor which causes a change in the cost of an activity

A cost driver triggers a change in the cost of an activity. The concept is most
commonly used to assign overhead costs to the number of produced units. It can also
be used in activity-based costing analysis to determine the causes of overhead, which
can be used to minimize overhead costs. Examples of cost drivers are as follows:

 Direct labor hours worked

 Number of customer contacts
 Number of engineering change orders issued
 Number of machine hours used
 Number of product returns from customers

If a business is only concerned with following the minimum accounting requirements

to allocate overhead to produced goods, then just a single cost driver should be used.
09. Theory of constraints
Ans: The Theory of Constraints is a methodology for identifying the most important
limiting factor (i.e. constraint) that stands in the way of achieving a goal and then
systematically improving that constraint until it is no longer the limiting factor. In
manufacturing, the constraint is often referred to as a bottleneck.
At any given time, an organization is faced with at least one constraint that
limits business operations. Typically, as one constraint is eliminated another constraint will
arise. The organization should then focus its attention on the new constraint. And
this process repeats itself continuously.
According to the theory of constraints, the best way for an organization to achieve its goals
is to reduce operating expenses, reduce inventory, and increase throughput. The theory of
constraints includes three core principles, six steps for implementation, and a five
step thinking process.

10. Throughput accounting ratio

Answer: Throughput Accounting Ratio is a ratio of throughput per unit of bottleneck
resource to the factory cost per unit of bottleneck resource. As the purpose of Throughput
Accounting is solely the short term. All the attention is put on the removal of bottleneck
resources.

Example Question
Suppose that a factory manufactures a single product. Each unit product takes two hours
to make on Machine X and output capacity is restricted by the available time on Machine
X, which is restricted to 500 hours per week. The product has a material cost of $20 per
unit and sells for $160 per unit. Total operating costs are $30,000 per week.
Answer Solution
Throughput per machine X hour =$ (160-20)/2 hours= $70
Factory cost per machine X hour = $30000/500 hours = $ 60
TPAR ratio = $70/$60 =1.17
11. Break-even point analysis
Ans: The breakeven point is the production level where total revenues equal total
expenses. In other words, the break-even point is where a company produces the same
amount of revenues as expenses either during a manufacturing process or an accounting
period. Since revenues equal expenses, the net income for the period will be zero.
The company didn’t lose any money during the period, but it also didn’t gain any money
either. It simply broke even.

A break-even analysis is a financial tool which helps you to determine at what stage your
company, or a new service or a product, will be profitable. In other words, it’s a financial
calculation for determining the number of products or services a company should sell to
cover its costs (particularly fixed costs). Break-even is a situation where you are neither
making money nor losing money, but all your costs have been covered.
Break-even analysis is useful in studying the relation between the variable cost, fixed cost
and revenue. Generally, a company with low fixed costs will have a low break-even point
of sale. For an example, a company has a fixed cost of Rs.0 (zero) will automatically have
broken even upon the first sale of its product.

For an example:
Variable costs per unit: Rs. 400 Sale price per unit: Rs. 600 Desired profits: Rs. 4,00,000
Total fixed costs: Rs. 10,00,000 First we need to calculate the break-even point per unit,
so we will divide the Rs.10,00,000 of fixed costs by the Rs. 200 which is the contribution
per unit (Rs. 600 – Rs. 200). Break Even Point = Rs. 10,00,000/ Rs. 200 = 5000 units Next,
this number of units can be shown in rupees by multiplying the 5,000 units with the selling
price of Rs. 600 per unit. We get Break Even Sales at 5000 units x Rs. 600 = Rs. 30,00,000.
(Break-even point in rupees)

12. C-V-P analysis

Ans: Cost-volume-profit (CVP) analysis is used to determine how changes in costs and
volume affect a company's operating income and net income. In performing this analysis,
there are several assumptions made, including: Sales price per unit is constant. Variable
costs per unit are constant. Total fixed costs are constant.

Example
Variable costs, on the other hand, change with the levels of production. These costs include
materials and labor that go into each unit produced. For example, a bike factory would
classify bicycle tire costs as a variable cost. Every bike that is produced must have two
tires. The more units produced; the more tire costs increase.
 The CVP analysis uses these two costs to plot out production levels and the income
associated with each level. As production levels increase, the fixed costs become a smaller
percentage of total income while variable costs remain a constant percentage. Cost
accountants and management analyze these trends in an effort to predict what costs, sales,
and profits the company will have in the future.

They also use cost volume profit analysis to calculate the break-even point in production
processes and sales.

13. C-V-P analysis techniques

Ans: The amount per unit is constant with output; under normal circumstances
cost-volume-profit analysis uses the technique of:
(i) Break-even analysis:
 Contribution per unit
 Profit
 Breakeven point
 Contribution /sales ratio
 Sales revenue at breakeven point
 Margin of safety (in units)
 Margin of safety (as %)
 Sales volume to achieve a target profit

(ii) Profit-Volume (P/V) analysis

14. Margin of safety

Ans: The margin of safety is the amount of sales over a company’s break-even point. In
other words, the margin of safety is the amount of sales a company can lose before it starts
to lose money or stops making a profit.

Example
The margin of safety is also an important figure because it shows how safe the business is
in producing products. For example, assume a manufacturer calculates its breakeven to be
100 units. Based on its sales projections, the company anticipates selling 150 units during
the next quarter. The margin of safety on this product is 50 units.
This means that the company could potentially lose 50 sales during the period without
creating a loss from operations. If the company loses 60 sales during the period, it won’t
make its breakeven point and will lose money producing the product. The margin of safety
 calculation helps management assess the risk of producing a produce and aids in the
overall decision to manufacture to product or leave the market.

15. Operating leverage

Ans: Operating leverage is the ratio of fixed costs to total costs in a company’s cost
structure. Companies that have a fixed cost to total cost ratio or degree of operating
leverage are said to have high operating leverage.

Example
One example of a company trying to raise its operating leverage is by automating its
assembly line. Almost all car manufacturers have fully or partially automated assembly
lines. The automation lowers variable costs and direct labor costs, but in turn raises fixed
costs

This makes the business operations much riskier because the car manufacturer now has to
produce more products just to breakeven with the higher fixed costs and higher operating
leverage. In a sense, operating leverage is a measure of operational risk because it shows
how much fixed costs will have to be overcome in order to breakeven.

16. Limiting factor analysis

Ans: Limiting factor analysis is a technique which will maximise contribution for an
organization, by allocating a scarce resource that exists to producing goods or services
that earn the highest contribution per unit of scarce resource available

Limiting factor analysis is usually applied in the short term as in the long term most
limiting factors, such as production capacity, can be overcome by adding additional
capacity.
In any limiting factor analysis, there are three main steps.
Step 1: Work out the Product Contribution per Unit

Step 2: Calculate the Contribution per unit of Limiting Factor

Step 3: Allocate the Limiting Factor to Production

17. Slack and surplus
Ans: Slack occurs when maximum availability of a resource is not used. Slack is the
amount of the unused resource or other constraint, where the constraint is a ‘less than or
equal to’ constraint.
Surplus occurs when more than a minimum requirement is used. Surplus is the excess
over the minimum amount of constraint, where the constraint is a ‘more than or equal to’
constraint.

18. Shadow prices

Ans: The shadow price or dual price of a limiting factor is the increase in value which
would be created by having one additional unit of the limiting factor at its original cost.
The shadow price or dual price of a constraint factor is the amount of change in the value
of the objective function created by the availability of one extra unit of the limited resource
at its original cost. (Example: the increase in contribution).

19. Price sensitivity

Ans: Price sensitivity can be defined as the degree to which consumers' behaviors are
affected by the price of the product or service. Price sensitivity is also known as price
elasticity of demand and this means the extent to which sale of a particular product or
service is affected.
Let's assume that when Tropicana orange juice prices increase by 50%, Tropicana
orange juice purchases fall by 25%. Using the formula above, we can calculate that the
price sensitivity for Tropicana orange juice is:

Price Sensitivity = -25%/50% = -0.50

Thus, we can say that for every percentage point that Tropicana orange juice prices
increase, purchases decrease by half a percentage point.

20. Price elasticity

Ans: Price Elasticity is a measure of the relationship between a change in the quantity
demanded of a particular good to a change in its price.

If a small change in price is accompanied by a large change in quantity demanded, the

product is said to be elastic (or responsive to price changes). On the other hand, a product
is deemed inelastic if a large change in price is accompanied by a small amount of change
in quantity demanded. For example, if PED for a product is (-) 2, a 10% reduction in price
 (say, from £10 to £9) will lead to a 20% increase in sales (say from 1000 to 1200). In this
case, your revenue would increase from £10,000 to £10,800.

Having a knowledge of PED helps you decide whether to raise or lower prices, or whether
to price discriminate. Price discrimination is a policy of charging consumers different
prices for the same product. If demand is elastic, revenue is gained by reducing the price,
but if demand is inelastic, revenue is gained by raising the price. When PED is highly
elastic, you can use advertising and other promotional techniques to reduce elasticity

21. Profit-maximizing price

Ans: Profit are maximized where marginal cost equal to marginal revenue. The optimal
selling price can be determined by deriving equations for MC and MR. Alternatively, the
optimum selling price can be determined using tabulation.

22. Cost-plus pricing

Ans: Cost plus pricing involves adding a markup to the cost of goods and services to
arrive at a selling price. Under this approach, you add together the direct material cost,
direct labor cost, and overhead costs for a product, and add to it a markup percentage in
order to derive the price of the product. Cost plus pricing can also be used within a
customer contract, where the customer reimburses the seller for all costs incurred and
also pays a negotiated profit in addition to the costs incurred.

As an example, ABC International has designed a product that contains the following
costs:

 Direct material costs = $20.00

 Direct labor costs = $5.50
 Allocated overhead = $8.25

The company applies a standard 30% markup to all of its products. To derive the price of
this product, ABC adds together the stated costs to arrive at a total cost of $33.75, and
then multiplies this amount by (1 + 0.30) to arrive at the product price of $43.88.
23. Market skimming price
Ans: a pricing approach in which the producer sets a high introductory price to attract buyers
with a strong desire for the product and the resources to buy it, and then gradually reduces the
price to attract the next and subsequent layers of the market. such as an expensive perfume)
or a uniquely differentiated technical product (such as one-of-a-kind software or a very
advanced computer). Its objective is to obtain maximum revenue from the market before
substitutes products appear. After that is accomplished, the producer can lower the price
drastically to capture the low-end buyers and to thwart the copycat.

24. Market penetration pricing

Ans: Market penetration pricing is a pricing strategy that sets a low initial price for a product.
The goal is to quickly attract new customers based on the low cost. The strategy is most
effective for increasing market share and sales volume while discouraging competition.

A current small-sized player in the marketplace that sells laundry detergent at $15. Company
A is an international company with a large amount of excess production capacity and is,
therefore, able to produce laundry detergents at a significantly lower cost. Company A decides
to enter the market, employ a penetration pricing strategy, and sell laundry detergent at a sale
price of $6.05. The company’s cost to produce a laundry detergent is $6.

With a marginal cost of $6 and a sale price of $6.05, Company A is making nominal profits
per sale. However, the company is comfortable with this decision as their overarching goal is
to switch customers over, capture as much market share as possible, and utilize economies of
scale with their high production capacity.

Company A believes that its competitor will not be able to sustain itself in the long-term and
will eventually exit the market. When the competitor exits the marketplace, it will become the
only seller of laundry detergent and therefore be able to establish a monopoly over the market.

25. Product line pricing

Ans: Product line pricing refers to the practice of reviewing and setting prices for multiple
products that a company offers in coordination with one another. Rather than looking at each
product separately and setting its price, product-line pricing strategies aim to maximize the
sales of different products by creating more complementary, rather than competitive,
products. If you offer more than one product or service, consider the impact that one product's
 or service's price will have on the others. For example, a company may manufacture a range
of hygiene and skincare products, such as soaps, shower gels and bath oils, under the same
brand name. With product line pricing, there will be a consistent pricing policy for all the
products in the range.

26. Price discrimination

Ans: Price discrimination is the practice of charging different prices for the same product to
different groups of buyers when these prices are not reflective of cost differences.

Example of Price Discrimination: Cineplex

Canadian entertainment company Cineplex is a classic example of a firm using the pricing
strategy. Depending on the age demographic, tickets for the same movie are at different prices.
In addition, Cineplex charges different prices on different days (Tuesday being the cheapest
and weekends being the most expensive).

27. Relevant cost pricing

Ans: A relevant cost approach is to identify a price at which the organization will be no better
off, but no worse off, if it sells the item at that price. Any price in excess of this minimum
price will add to net profit.

28. Outsourcing
Ans: Outsourcing is the practice of passing individual tasks, subareas, or business processes
over to a third-party and thereby receiving the results from outside of your own company.
Services that your company was responsible for fulfilling will now be provided by
a specialized service provider. These tasks are often a business’s secondary functions: tasks
that must be fulfilled for a company to focus on its central activity. This is also known as
contract manufacturing or subcontracting.

Outsourcing involves subcontracting parts of a company's value-chain, (i.e. steps in the

design, supply, production, marketing, sales, and services processes) to other companies or
contractors that specialize in those activities

29. Maximin decision rule

Ans: The maximin decision rule suggests that a decision maker should select the alternative
that offers the least unattractive worst outcome. This would mean choosing the alternative
that maximize the minimum profits
30. Maximax decision rule
Ans: The maximax criteria looks at the best possible results. maximax means maximise the
maximum profit. The decision with this rule is to choose the option that could provide the
maximum possible profit.

31. Decision trees

Ans: A decision tree is a pictorial method of showing the different decision options in each
situation, and the possible outcomes from each option. Decision trees can incorporate the
probabilities of both the expected outcomes and the EV of each decision option. Decision trees
can also show both initial decisions and subsequent decisions, where a decision is taken in two
stages, at two different times.

32. The value of information

Ans: Perfect information is guaranteed to predict the future with 100% accuracy. Imperfect
information is better than no information at all but could be wrong in its prediction of the future.

The value of perfect information is the difference between the EV of profit with perfect
information and the EV of profit without perfect information.

The risk or uncertainty in a decision can be reduced by obtaining information about the likely
outcome situation. Information about the likely outcome has value, because it improves the
likelihood of making the best possible decision when faced with several different options.

The value of information can be calculated on the assumption that the EV decision criterion is
used. The value of information is the difference between the EV of a decision if no information
is available and the EV of the decision if the information is made available.

33. Sensitivity analysis

Ans: Sensitivity analysis is a method of analyzing the uncertainty in a situation or decision. It
measures the effect of changes in the estimated value of an item on the future outcome. It can
therefore be used to assess the sensitivity of the expected outcome to variations or changes in
the value of the firm (‘key factor’) such as expected sales volume, sales price per unit, material
costs and labour costs.
34. Incremental budgeting
Ans: Incremental budgeting is a method of budgeting in which next year’s budget is prepared
by using the current year’s actual results as a starting point, and making adjustments for
expected inflation, sales growth or decline and other known changes.

35. Activity based budgeting

Ans: Activity based budgeting involves defining the activities that underlie the financial
figures in each function and using the level of activity to decide how much resource should
be allocated and how well it is being managed and to explain variances from budget. Activity
based budgeting is merely the use of activity based costing methods as a basis for preparing
budgets.

36. Rolling budgets

Ans: Rolling budgets also called continuous budgets are budgets which are continuously
updated throughout a financial year, by adding a further period and removing the
corresponding period that has just ended.

37. Learning curves

Ans: Learning curve theory may be useful for forecasting production time and labour costs in
circumstance where a workforce makes a new product and improves its efficiency with
experience and learning. This learning curve effect describes the speeding up of a job with
repeated performance.

38. The principle of controllability

Ans: The principal of controllability is that managers of responsibility centers should only
be held accountable for costs over which they have some influence.

39. Material mix and yield variances

Ans: Material mix variance occurs when the materials are not mixed or blended in standard
proportions and it is a measure of whether the actual mix is cheaper or more expensive than
the standard mix

A yield variance arises because there is a difference between what the input should have been
for the output achieved and the actual input.
40. Sales mix and quantity variances
Ans: The sales Mix variance occurs when the proportions of the various products sold are
different from those in the budget.

The sales quantity variance shows the difference in contribution/ profit because of a change
in sales volume from the budgeted volume of sales.

41. Performance measurement and measures

Ans: Performance measurement aims to establish how well something, or somebody is doing
in relation to a plan. The ‘’thing may be a machine, a factory, a subsidiary company or an
organization. The ‘body’ may be an individual employee, a manager, or a group of people.
Performance measures may be divided into two types
Financial performance indicators
Non- financial performance indicators.

42.The balanced scorecard

Ans: The balanced scorecard approach to performance measurement focuses on four different
perspectives of performance and uses both financial and non-financial indicators to set
performance targets and monitor performance. This approach emphasizes the need to provide
management with set of information which covers all relevant areas of performance in an
objective and unbiased fashion. The information provided may be both financial and non-
financial and cover areas such as profitability, customer satisfaction, internal efficiency and
innovation.