F5: Responsibility accounting and not for profit organisations
mark057
Registered Posts: 352 Dedicated contributor 🦉
Hi there,
I've just completed a question explaining why responsibility accounting is difficult to apply in not for profit
organisations.
I pressed the point that a not for profit may find it difficult to apply responsibility accounting as it does not have
clear performance measures to assess managers performance as in the case of a commercial organisation.
I talked about:
Multiple objectives of an NFP - Hard to determine performance as the primary objective of an NFP is hard to
determine.
Measure of output - Subjective evaluation of the quality of outputs from an NFP.
Lack of profit measure - NFP's can't measure perfomance by traditional measures e.g. ROI, RI
Nature of service - Hard to put a cost on services provided by NFP's
Financial constraints - NFP's are funded differently from commercial organisations e.g. charity donations etc.
Does this sound plausible???
Mark
I've just completed a question explaining why responsibility accounting is difficult to apply in not for profit
organisations.
I pressed the point that a not for profit may find it difficult to apply responsibility accounting as it does not have
clear performance measures to assess managers performance as in the case of a commercial organisation.
I talked about:
Multiple objectives of an NFP - Hard to determine performance as the primary objective of an NFP is hard to
determine.
Measure of output - Subjective evaluation of the quality of outputs from an NFP.
Lack of profit measure - NFP's can't measure perfomance by traditional measures e.g. ROI, RI
Nature of service - Hard to put a cost on services provided by NFP's
Financial constraints - NFP's are funded differently from commercial organisations e.g. charity donations etc.
Does this sound plausible???
Mark
0
Comments
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Remember to state Not for profit organisations are based on Value for Money and the 3 E's:
Economy / Efficiency / Effectiveness0 -
Nice one MarkMeasure of output - Subjective evaluation of the quality of outputs from an NFP.
This is very significant as many NFP organisations try to substitute inputs for outputs.
For example political parties have judged their commitment to the health service using the amount they spend on the provision (input) rather than what the health service provides. (As you allude, because measuring outputs is so difficult)Sandy
sandy@sandyhood.com
www.sandyhood.com0 -
Thanks for your feedback Sandy. I'm finding it invaluable at present as a benchmark.
Just one other question about the opportunity cost of labour.
I've just completed a further processing question that required an opportunity cost of labour. I calculated selling price
less material cost and labour to give me a contribution figure for 1000 litres of output. I then divided the contribution
figure by 2000 labour hours (number of labour hours used to produce 1000 litres of output) to get an opportunity cost
per labour hour.
The book answer; however, calculated the opportunity cost of labour as selling price less material cost equals lost
contribution divided by the 2000 labour hours.
How can that be given contribution should be selling price less variable costs?0 -
Are your answers the same?
Just think about it. Labour is in short supply, so we must use the opportunity cost rather than the amount paid.
If I was paid £90 to do a job which earned £120 contribution and was taken off that job to do another job, then the other job would have to build in my cost as £210.
If the original job generates £500 income and has material cost of £290 and (as we know) labour cost of £90, I could find the same £210 by saying £500 less £290.Sandy
sandy@sandyhood.com
www.sandyhood.com0
