Page 99 - Unisa Test 4 Manac Slides

PERFORMANCE MEASUREMENT

Managerial vs. Economic Performance

Managerial performance:

If the purpose is to evaluate the divisional manager then only those

items directly controllable by the manager should be taken into

account. Therefore indirect costs (e.g. head office costs) are not

included in the calculation as they cannot be influenced by the

divisional manager.

Economic performance:

If the purpose is to evaluate the division’s economic performance

then by only taking items directly controllable by the manager into

account you will overstate the economic performance of the division.

This is because if the division was an independent company it would

have to incur the cost of those services provided by head office.

Therefore, when evaluating the economic performance of the division,

all costs should be included in the calculation.

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