An entity's legal nature reflects its organizational form. Selecting the organizational form is one of the most important decisions business owners make. This choice affects the costs of raising capital, operating the business (including taxation issues), and, possibly, litigating. The available organizational form alternatives have increased remarkably in recent years.The most popular form for large, publicly traded businesses is the corporation. However, smaller businesses or cooperative ventures between large businesses also use general partnerships, limited partnerships, limited liability partnerships (LLPs), and limited liability companies (LLCs). These latter two forms have recently emerged due to new federal, state, and international legislation. Both the LLP and LLC provide more protection for a partner's personal assets than a general partnership in the event of litigation that leads to firm liquidation. Accordingly, LLPs and LLCs may offer better control for legal costs than general partnerships.
[...] Another operating environment consideration in the design of a cost management system is the need to integrate the organization's current information systems. The systems (such as payroll, inventory valuation, budgeting, and costing) that are in place should be evaluated to answer the following questions: What data are being gathered and in what form? What outputs are being generated and in what form? How do the current systems interact with one another and how effective are those interactions? Is the current chart of accounts appropriate for the cost management information desired? [...]
[...] Competition is prevalent among supply or chains as well as individual businesses. Thus, future financial specialists will develop only cost management systems that include activities not occurring within single firms but occurring within a supply chain and involving several firms. SUMMARY It is not feasible to simply adopt a generic, “off-the-shelf” cost management system. As in the design of any control system, managers must be sensitive to the unique aspects of their organizations. Three factors that specifically should be taken into account in designing [...]
[...] Elements of a cost management system A cost management system is composed of three primary elements: motivational elements, information elements, and reporting elements. The elements as a whole must be internally consistent, and the individually selected elements must be consistent with the strategies and missions of the subunits. Different aspects of these elements may be used for different purposes. For example, numerous measures of performance can be specified, but only certain measures will be appropriate for specific purposes. Motivational Elements Performance measurements are chosen so as to be consistent with organizational goals and objectives and to managers toward designated achievements. [...]
[...] Reporting Elements The reporting elements of a cost management system refer to methods of providing information to persons in evaluative roles. First and foremost, the CMS must be effective in generating fundamental financial statement information including inventory valuation and cost of sales information. This information is not necessarily the same as that being used for internal planning, control, decision making, or performance evaluation. But, if the feeder systems to the CMS have been appropriately integrated and the system itself designed to minimize distortions, there should be little difficulty generating an “external” product or service cost. [...]
[...] Because higher performance equals a larger reward, the cost management system must have specified performance “yardsticks” and provide measurement information to the appropriate individuals for evaluation purposes. Performance measurement is meaningful only in a comparative or relative sense. Typically, current performance is assessed relative to past or expected performance or, as illustrated in the following News Note, relative to peers. Informational Elements The accounting function in an organization is expected to support managers in the areas of planning, controlling, decision making, and performance evaluation. [...]
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