CONTIGENCY THEORY

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 termed as the contingency theory. The contingency approach to management accounting is based on the assumption that there is no universally appropriate accounting system applicable to organizations in all circumstances. Rather contingency theory attempts to specific aspects of an accounting system that are associated with certain defined circumstances and demonstrate an appropriate matching.

Major factors recognized are:

Environmental factors like:

• Its degree of predictability
• The extent of competition faced in the market
• The number of various product in the markets
• The degree of hostility exhibited by competition

Organizational Structure Factor including:

• Size of the organization
• Interdependence of the parts or sub-units
• The degree of decentralization
• Availability of resources

Technological Factors such as:

• The nature of the production process
• The routineness or complexity of the production process
• How well the relationship between inputs and outputs is understood
• The amount of variety in each task that has to be performed