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Describe the Contingency theory of budgetary control

      

Describe the Contingency theory of budgetary control

  

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Faith
Some researchers have argued that the context in which budgetary control is used is as important as the style in which it is implemented and used. This is known as contingency theory. The contingency approach to management accounting is based on the assumption that there is no universally appropriate accounting system applicable to all organizations on all circumstances rather the contingency theory attempts to intensify specific items of system that are associated with certain defined circumstances and to demonstrate an appropriate matching.

Major factors identified by the theory are:

1. Environmental factors e.g
(a) Its degree of predictability
(b) Degree of competition faced in the market (c) Number of different products in the market (d) Degree of hostility exhibited by competitors

2. Organizational structure factors. Examples are
(a) The size of the organization
(b) Interdependence of the parts or sub-units
(c) Degree of decentralization
(d) Availability of resources

3. Technological factors
(a) Nature of production process – converting inputs to outputs
(b) Complexity of production process
(c) How well is relationship between inputs and outputs is understood
(d) Amount of variety in each task that has to be performed

Contingency Theory
- This approach assumes that the applicability of a management accounting control
system is contingent on the circumstance faced by the organization.
- The contingency approach to management accounting is based on the premise that
there is no universally appropriate accounting system applicable to all organizations in all circumstances. Rather a contingency theory attempts to identify specific aspects of an accounting system that are associated with certain defined circumstances and to demonstrate an appropriate matching.
- Deals with social and political roles of management accounting
- There is no one best design for a management accounting information system, but it
all depends upon situational factors.

Major Factors/Cohesion
- The external environment
- Competitive strategy and strategic mission
- Technology
- Business unit, firm and industry variables
- Knowledge and observability factors

Titany answered the question on October 12, 2021 at 08:27


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