cHOu/4055-02.

[Total 9 (eac-h parrlesiZ and queslion nos.

I
\{..ite

nlfYt lll5IlIUrE ot XANAGEP-tl{r tr0DlES Alio Ri:ill.-ri - LIBR irRY

advisecJ nol to create Profit centres

Explaln tlre

3 '(a)
(b)

',r\]

GeirUe

types ol Flesponsibility Cenlres

jn

5. (a) '^ i {b)

Wtral arc intcraclive ccintrdls ?. Discuss lealuies of Mdnagernent Corltrdl.S.yst m in Non-Profil OrganisationS, -. ent (HOl). -'What are iis advahtages .1 . . h1 as a concept superior to ROI and yet, in-certain

tion of lnvestment cetitres- Explain this phe-:romenon

' B. 9.

-*'ithin the -o+ganisa{isn,.

-:

' - .

lliour

factors which,iniluence lhe goal congrugnce

Exptain varicius !eatures bl finar;ciiiilOperatlonal and Manag.emenl Audit (all ol which cl lnt.:rn:r! Audit). lllustrate. with-cne example:

ire

forrhs

sf onse incltrced b), lhe treatrnenl of each ol these elements in rnanagers

lrivestment Base used in performance evaluation of inveslment cenlres corisists of various glgqgnttEixplain ceneral praclices used :i-t organisatioiii in treatmenl of-.each element and tird likely re10

..^{ ( '

10. Usha ProcJucts Ltd. has lhree divisicns-

Profes.sional Services, Consumer Produc-ls (CP) and indirslrial Prcduc:s. Each ol these divisionS'contribules equallr'to tola! company sales. bul..the characlcrislics of business are difierent tor dilfdrent divisrons. C:nsumei Products (CP) d,r;;ion is lhc. oldesl ol the three. lt is involved in deslgning, rnin-ufacturing and markeling a line of househOld piodrrils, rnainly t,s.:d in kitchen. Fach.:ditision is.a prolit centre and criterion loi'psrfetmance ei,,alualior, is Rettrrn on lnvestment (HOl). Thergj has been a general discontent among man3gers ir'rat itre ROI ot Cp divisicn i-. highestfmong all divisions because ol lhe older assels employed in the Cp dii.isicn. Ma4agement-nas UbitOiS.to implement a detailed Balance Score card initially lor CP c{rvision. Assist the Managemdnl lo thls task

,-jO. year end

: 'Ot inlcrrmalion aboul two cxpense cenlres in an orgjanisalion provlding services is tabulated 5o1r-,,,i. 16r-lle rrse<1 i-:r revielv ard oelJotrnanCe appiaisal. Ali figures are in Rs. :Cc n tre

'1d

Bu.dge.!

Aciual :
13,85,154

Over Budget
54,261

linder Eudget 4i,229

A ri
Tolal
!'iuinlrcr oi
Pe

13,30,893 .l1,76,302
"25,(t7,195
tsonn'cl
46 2(:

i1,30.073
25,15,22'l
46
24

llru,-t'

ltltrrta':rit !..r y.,hom lhe lrearjs of il)ese lwo centfes leport iS nol Clear On hOttl t3 USe irrlt'r/r,-;r:rrrr ir,r evalualiorr. Assurning thal any furlhcr inlorntation requesled would be i't: r'{!" ;,tionl, assist lhe ,lranager in'tils lai.k of evalualion-

1$

Me.!lrod 3':
t'.

lrourly raie

Each of ln each
s

or seciion.
pr: -{uclicrn supn;--ors your logic.
-i 5
)1

ho uld

.':" -.\_ ultlises.To% ol total cempany Compu!e noA Ior.Div year 20O-1 and 2000, -DP_for, Assumlng that riraiket exisls. !houid. the compaqy divest diiisloris oiher fhan Div.-DP ? Why/why nol ? Where do you thlnk financiat' discipline. by T9O mahagement is immediatety necessa

(c) , 'Juslifv one area. year Sales (Rs. Cr.) Division Dp '
Total. Coi"npairy

ry

?:

Net Piofit (Rs:'Cr.1, Division Dp -iotal

.

i3.82 , 17.8i:,
<..: . j,',

13:58

7Z.g?'

Compna!.

' 0-'54 O-55 ,O:45' ,-.O.24 .::..= . '.- 1: '-' : .: -< ,.._ 21'.77 ZO.rO : - ...31,.66:. 31;64 7-15 '' 6.2s : S.',1 S.OS 3 85 , 1-66 3.0 3.O . .Qr
at Rs:40 pet

under:-

.:oiv'ii.:
,

Sales

(Hi- iacs)
@ @

Omega Co. '(R:-,. latcsl

10

5O,000 units 2o 000 unils

Rs. 20lunil Rs. 40/unit

Toial
'

-.10

'8A
a

Expenses :
Va: .'ab':

10,
..-. ..fl;.i

1B

Fixed Expensei Totel Expenses

Gross lnconte

uu,00u uhils @Rs. t.Oiunit 20,080 units @Rs-' SO/unil

'3
(8)

6( 1 (7)

5
.:

(1s)

-it
I I

.t

j':: ,::

li

o u/4 05s-B 8.5682-C2.

3'

\1.2.

''\ '

on .lheir perlr.rrnracne

Shrveta. Enlcrorls.ss used Econo$lc vatu'o"adr';ed (EVAi nrethod lor measuring divlstonal prollt '!5'; perforntance loir"lti thrce.dlvlslons - J,'K-& L. Company ehar0e to dlvlslons to;=: iurrent'assbts is 5% lvhiJe lor tixed asseis ll is 10% ln EVA compulation.-lnf: : '-1' ls glven.tielcw (in Bs. C-' )

:-

Div J

Div K

Div L
60

B'
l']rotil
-

A"
80

Curient .a,sse-ls
Fixeci assets

.'t
--

s0.

00

400

.90

400

B'-A" s5200 -.. 400

190.

450

': 5oo

8.A.. s0501 300 '-55C

55c

.
'|

,:.Actual cn

'Budgeled

' .

(a) (b)

tlre basis of iniormatioh oiven :-: .. .. What are tie bu.1.elec end acluAl-Return on assets {or .--;h of tlre f hree divisions ? -(Iabglaf)-,-What ?-re the budgeled and actual economic value acided (EVA) figures in.Rs. Crs- for eacti .

(c)

ot tt'; divisions (Tabulate). ::.. To, what exienl actual EVA ls: b-etou[ or

abo-ve the budget (cr eacnrct the

lhree divisions

i
15

Vijay Enterprisbs has lhree diYisions. One of lhese mailufactures ProduQl A, rvhich.is sold io anbther division as a c.)mllnent of its Product8., Product B is in turn sold lo the thircl divisiOn which uses in,its Prod,.:ct G .ProOuCt C.is So[d in the'oulside market- Cbmpany has a'rule r{ as a "orppon"ni one division to Plus a ld be charged qUiied. standard cost :on the'basis o A P/odtict B Product C Product Standard cost per Unit 'lo 'Purchase oi olltside materials (RsJ. 30 . 20

Direct Labour (R-r-1 \rariable overhead (Fs-) 'i:ixerj overhead per Uni'. (Rs.)
A..,erage lnventory, (Bs
)

10
10

10

10

?o 20
10

30,

40

l.let lixeJ ass.ts (As.)

S

7 lacs 3 lacs
'1 lac

1.5 lacs
.+'J ld-s

3 tacs 1-6 lacs

lan\:'ard ProCi:ciicr.i {.Urits)

1 iac

'l

lac

--Q:--

,,r.6. (i)
(2)

harks)

anct

and 12 Cariy

1:

12

'12

s. {t)
)'\-(b)
6,-ajnisrtans_.with DivisionalrElusihess rr^:. erpBlisncL' dividod royarry loyarry in carryin :;1,'J':,T:l: a situation co(,ld such :,1.:0"9 :o('ld siruarion'be'r;;"-tr#; be re.scived

6a,,6
?

^---... ...

'I:::":"::
-Y
'

oivisionat conrrorrers oiyisionar conrrolers .*::_"_0":1"."d -l::: "o"gly"d sing'possibh co sing'possibie.conlrol difticulties.

rhat rhar

12

How

;;1:;r-

ertsirruered (siandarc,) xpedse conr{6;.zsro-1aS"o oro9"r

expia

:lli* 1"n-'oiu,u,"-*,,.^ ffi;,",":l'ilH;;:,

,.

;:::

12

^";;.:;:;:::":H:

12

Y[i] \y, w;t ,'t '

',

H:',',1 : x3i: in the naru rs ot. rho in,orma tlon. ne6 lt il wttn suitabl. '?,',',:l,t,.;i;r.,11" r"pia.e,.,it['n]'ffffii,l.nff:tyr".t|lllllrlili,;11,.rl, ;,;;,;..iir"fft *,.n .r-n.or6 didsrarhauc ,"r;u..-on'il,lr^T:li:,f caryour coirror acrivrrres.

"r;i;"

-"-

*,txli:liJ

vrorrr ccntre dscentratised

comiarryi E

ffi ,rIJ,i][,

12

"oranrages

and oi."or:unr"s",

riow srritrro rhc .ompanv reors6hrse,o

irr rhjs
t!

dcmands. rask.

coSlS. sl(cngthen

ri,iX,:" anJ -'iing

u Prvuuurroll orlented company. 'vEErr vov uutsourCes 3O7o SSC wants be in a poslrion to probirci';;.;il;'":-19"?t rnasures ro rsrluce

r"n,r,i

nl;;;;#;

ff":r:r,j",;l}ff|'ro'n"i
ines and calering

ltas decided to imprem.nt :H"rp a {9r_aireo Bahnced -scorecerd. m" Management to

tai I :;;-l-GE

( ,1)

!ill"lt".

.rrrilriEsJ
14.7
B I

3-87 I

31

l.1elUrn On gOUilv i.,,-l

ts.s

496

2224

l?.gjt:l ?;;il;;o 1i;eo)-" r fi n., \,.,.,n -'! '.' ns---:-_ r Or-]---.-

61 .1"/,,

43.5%
44:5

l0

s7.5

I runru overi

'2

,i-

tumov:r,
tat le.-

quairfiod

rr0 . .51.. :,i.Si, l._-; _.-..--! .. _ apilai .- Sd '' ., ".::....1 :,. '.."i'

12.

Selling price -

90 80

(Rr. r r"!'l ,

Eftgireo Sales (Unlts

2t0o

Div E

'7
and Oueiafi Company ,; :s a whole. Com"r"ni IO

90.ooo

,,8 .r4 Ma.nagament

__
a

Controtrs ln oirro.enl

{trnctions.

10

tf EvI;"c e.fUhrxen nEvtsEo

N.8.

(i)
(2)

lt t'Explaln

z.1finn

:t /Explain dillerehi

{ particular.'

organisational Go:ils. crirrhrnent on goar.oi srrare ' .'-''.

f

holdli

*t

"

s. (a)'
. .. , i.

. - t -/. o''p/Explain

ltrransfet pricin ricin (Uarkei.price ls' @f

;i,^ri;; Too oLnting -^^

ilbc.eVen

t' fwnaii" Balanced.scorc Ga.ryt r wiiTir tn.'process oi imptgmgrrtalion and difficutries in-imotemenration ' \ ,,-t ., .+i-'. - ./ u /X9f. uEbrg'rers apfia'rerrtry disa.gree apparently dis.a.gree 'vrvr
lo rg ,.-_

and i[ustralo itith one example'the differencr s belween cperaiional and Managme{}1. vrv,q,,1,,rar qilu tvtatlagmelll. r '. ,. . ; :- -. :..--. """" three formsbf lntemal Aucrjr-ri.,"n"iut. .:..,_r1 .:_r.., .. : . ,-rj:- .r:.._

.1

ln

i1u;ira6;s] ^--"---'.':'t-

- ---. ]
?

wheiher a slNGLE rneasure lvhether S|NGLE.rneasure evarluale orofit perfcrmancb and ,capital1:siglr.ers prirtormartce,isiireteriaole or SEpnnei;;;;;; lo evlluale prglit o.rformancb nnrr n.{'.-.., lnvestmenl ,.r..,lvqesrvo f;, Eo&rt dre prbfenabte _ Comment.\}- l rvr each a,ts ptElBltctutg _vutluilenl&
I

:;eement.-.-'-"-

slzed orginisalion Girish Enjine,ering.

,t,tonttrty ; ..

100.13 6u.34 38-82

t,l?n'o

0.21

B-st (Unfavouraulrl J
in_perrorrnarce reporrins iort. ? Why ? Wt y ,o-t

(Favourable)

.,

1.

,,;i \u'
Veena

.,):. ^"n01.1"1. niioned abo;e be ir:rcludeo in Controliabiej

ken
r

u:-.. ,

...r"$

Lever).
i

ivt.

? .;

Lld,, a small nlultiprodu \A,hat bh?ngqi-ia 1!li con

t:. '-,

d-.yq

2.

ucgel ve rsus A.ctuat c,Jmp"risoiilio-jiy_z.o

(a) (lr)

income '/lriaplc exponses Fixed expertses Sales promoilonal expenses Operalirrg profit r{et v/orftng capitai Fixed dsse.ts
Sales and olher

carry oul an
!T

,Or,/

ove rall performance analygis lo decide areas neoding investiga.tion. hal remedial measures . il any,-rvout6 lisg suggest based on ih."u;nti;i,

. Bu<Iget eciuai SO0 l4O 480 436 ea I20 qO Zg 160 156 4oo t 4t? t60 r4g

'

i9

7. ;

494

r2

E1qduct

, . rlgrrsslpJi+lq-eji Div.-M. Diir- P t,iv.

iri
l,

, I
.,i .t {

,,-[l
.; a r

H.B.: (1)
(2)

.12
..12''
. . rt:
,,-

i.)*,. .']i
..1

-'',j:-

12,j

q'
.6
6

A, :l

(b) ,"r'lliusf ral

@)Wt1at are advantages in conducting liternalAucjit ? e clillpror,aa harrr iaa n c:^ ^.-^r:-;r - . - . ,.-- ino

agement audit vrith an

erample.
methods:il

6
:

6
6

anagenrunt style and the impiicalions of Top tvtanagement lep lransterpricing and profiL::i:aring

i(r) rotor pu. ro

l

Materiats, Maintenance, A.[ocar6d

Tocls

*"i""1;!

scrip

I I

', ;11"^

i".ii: :]:ly

I I

36i

(Lr) can rhe "l,pervisor b;

-Exp-Ejor

;.r;;;il;[i;ffi',rufi;;r!r;;
signific'ant*""i!,l.,l

.'-o^iu^ I 13s0s I | i

tu
3114

rzszs

.uzto 2413'30
5

0'
1.

lde.lily

q
ancl explain in delall rvhat in Ananva

f :;:;ilt";'i:::::::"
'I

nager*nr conrror sys:ern and conrrorprocedures rnternirionat-i.mru Ji,".iir,"a 1on,f ""v ,iri".'r,'rl'uoushr our by a sroup

10

llaty,ani Enlcrirrj:cs (KE) is a nieiliunr s llre Corporale lrrr;onre kx tale was 4C? expecterl lo inrpiovo quaLt),rosu rg ln i Irrn)o!,er ralio b;, 29,". .Honerc r, i}e^ r.rould incrc;,se Uy Fls. 1-B Cr o

-.. .: . (,::, :.. ''

rl': i:

f,'/:1..!'

-,&i.i.':rti'.

t ,;

rl
t

Ousrler
Acount receiv2r.in Cash
lnventor.l. Fixed assets

1-

.:-truaier
8.50
2-O

i -

21 50
?t) 17
.J

Factorl.cosli
Marketing Costs Freighl Adrrrinistrative el:F)ense

Q.BO

10
5

15

.l

12

'^/ -tffinin"\

is a rcspc,rr-sibility :cntre

List ai,O expiarn;iitlererir'types ot iosi2cnsibiiity centrdg'

:.
.C
6

-a'

,._|ln

Ezplain vaiiou,; leatues <if Finaricia!, Operalionil and N4anag^'ne I Audit. lllgstrate with one example.

12
6

8t.

@)

rbl

.: 474nf ,' \ ,(t i

4

"Tran's[ei pjrice is nol ah acCounting tool" witli --Commeni "Marliet F'rice'is ideal tranlfer even in limited mErkels"

illustralion/s-

''!

6
6

-'Comment.
1

^.4 4A- -Soniya CorhpanT has lrvo divisiotrs:A and B. leturn on inveslments lor bolhdivisions is2OY.. Delails'are vvrrrPd. 1.,,.1. given below:-l-YParticLla rs' Division B (Rs.) Division A (Rs.)

Divisiona

40,00,0c0 20,00,000 4,00.000

OB

96,OO.000

Divlsional lnveStment
Profi'.

. 32,CC.000
b.40.o00

A;ralysd and crmrrelrt on divisional perforrnai::e cI each.

i
i-l

Well-diveisi[.ed Company ils - Pritam In{ernational Lld sells one of divisions to a group of ils own company rnanagers., what.significanl changes in syste,',rs arrd ccrrrol procedurbs can be expecled ? Wh;, 2 -E1:lain
,rt

10

t!

Two divisions r' and B of'sonall Enterprises operare as Prolit Centres. Division.{ no;malty pyrchases annually 10000 nos. of required corrpohents frorn Division B;which has recently ir:formed Divisidn A lhat it uill increase scllirrg prics pcr unii tcr Rs. 1100.'biiision A decided lo purchas.e lhe componedls trom open markel araaitablq at.Rs. 1OO0 per unit.'NAluratly,'Olvisicn B is,nct happy and juStitied its decision to iricreaseDrice due to inflation and edcjed lhai overall com.oany piolitabiliq, wi'l reduce and the decision wiil lead !o excess capaciiy in DiuiSi;n [+, tvhese uariable-and-lixg'd cosl+per:-u!:til af reSJreclively R- .o5O criai H.s l,tOo (a'! Assuminglltal no-alternate usa exisls !or excess capacily in Division 9, wi! comfany a9_-a__r.v[r_ole

'bedeli: il Division A buys from lhe markel-

Jb) (c)
'i 1.

ll lhe n:arket price rettuces by Hs. 80 per unil. What would be lhe ettect on lhe'company (assuming '.',: Divisicn B still has excess cap-acily) if A buys lrom market. ll.excc,ss ca.oa,cily of Eivision''6 could be used for alternalive sales al yearly co-st savingi ol R's. tq.S lacs, should D;vision A purchase lrom outside ? Jusiily yo,r; ansricrs wit\ FIGUHES,
OR L-/H
of

Girish Enginecring is organised on piotil cerilr basis. Division X has an

unilsinarng!halBs. 1000porunlt. ToO.r<eculelhisorder,DivisionXnruslbuyacritical

ter lrom markel to al ): te

Division Y al urtil price of Ils. 220, Divislon Y has assione d monthly lix'ed cosls against lhis Il-s. "l.lar;s and a1 yeady. inveslment of Rs.2-4 vr. vvtttpgtrat ,"-cr. Compclitive rate of return on hvestmenl is 10%.', J as.:., --'. '
i,

::.

il:ojr_y. olhermalerial kom malt(et al Hs. 500 per unit. Fixed and processing qgsts ol Divii 8.. 2so'anAii.;qrr"rlili6'ii: ruigh ts nr. oo pei -- w.vtt ,"[. '', (r):,,cn
lhe:asis gf rcsiing, wlll the rhstraq c1 ot ctivlsion X be irrleresled is r
1 . e.

-.("

0..$j

ls
I

'Bt
Frotit
Gurrent Assets
FiXed AssetS

Divldlon X

..QlvlblqnY..

Ar'
r60
180

.8.

At'
:120 .3a0

Br'
100 000 10@

oitliliin 7
,rA'
100

'180

110.: 400

200
BOO

700

800.

'

800

- 900

.1{O0

Sr.

5 5

-tl
'.

15

is_-bflfo'llowing lnlormation (Rs- tacsl.and

Division
A
B

,. Profit

-'

coilmq4i gn cuireni AiseG:. Fiied'Assets

300

''

800
400
bUU

:'160
1 600 .1000

'

220
100 110

C
D E

400 200

'-:;.SQQ

160

'800

Controller feels coi'poraie Iinanie rates on current assqts anC fiied assets should be 5% aad iOo/" resPectivelY is aCequate-

!:. 1

'zJ)tt that influencc goa(&t!

'

'v

ly''

ry

<./ what

are the cbjectiveE of iar:sfer (a) (b) Shortage When do you use

is ideal'transter-Priccin ttre siiuations of

--

f -t,
1

/ivhut ^r. merit and

enter ? Discuss thr,

r.lnJ
i..j
v

-.y'';in)

What is a Non

IS

t he

evaluated ?

What do you understand.by batance Score Cayd ? lVhy is it considered sllerior to other methorjs oi performance Apprais al ? 'prepare Batancg. Scc:'e CarU 'or any organizatidn you are {amiliar witl.r' -/^ i: ./ do these missicns et'tzcl 1- rrz(vnai are the different types of Strategic missicos at SBU Level ? How Sii'ategic Planning process anci Budgeting at SBI'.,r Lcvel ?

Write shorr rrt ,es c r : (any twg! (a) Free Cash Flor,^r /
ation

r:uslomerdenrancjs *,

mpany(SSC). ettaUtished its orvn facilities in ln<Jia s.e range of shoes' Over o an.l enjo,r'ed an its Or,','n pefSOnrrelC;.OW S- SU rnarxers iis ;nq. Pressui'e !rln' Orga _ ctt:re is funclional. cnoap Chinese: shoes and irtso premiqrn shobs like Nike has made the'io.mpiny think of organizallc;:al reslructuring and intr.r:ducing Comensurate Control System to regain itsposltirxr- Although SSC ouisot.;rces 307" ot prouucrs, it is seen as a production oriented comparry- SSC wants to adopl nleasurcs to. rcduce b-osts,"slrenatiren marketing and be in a position lo produ-ce_1d mebt unexpccted and unusual
;

ll<rw slroulci tlre corrpan!/ reorganize to achieve Goal Conoruence ? lrefine Per{oi'ntancc li'4clricr.,,, OR to a group of i1" of it er mpany-Prasad lnternational "*r^ ol procadui-es can be m ems Expiain what silnificant c

i,E

t, i

[ ]-UPt'i L'vEf

'

"- i'.1?1iJ,',1,i"3,I3 flll.jl;],"?i1f,ff3|1: l-ii ill:,:e-iiate produ, ror'r.,hich no externar ''''" jnto prccuci "(;r t',te ratio o,' ooe unit one unit) and sells
-lo in.lhe-r,r:rkot Fo linat *-. *:: -.tooneunit)andseilsintherrarket..esl{ltollila[prcaUct{irt|9ratioo..ooeLnit its.whiih Diu B-can sell 6t 1r1rlor".price; is tabuialei ,-.
s000 Gnno
.

1i

'

50

':

' - '':i-

ili.:,:':.

Division

Oi,ri=ion

B
:

':':

ihis "rrri;s';;t .,.r on'why rn" iatrilp|

in

.(e) Define Prcfit (b) State t,r=

..'1f rihoh'isions and overalt Gompanlr

t;]<=mcanvasanlroie

c""#".rr

n o ts not happy, and justifieci iis

;s capacitv in Di'ision B, respectii,ely Rs. 950 and Rs. 1,100. u the ;narkel pri..

rvh

ose

"r,.[ffi"lfj

i;,.t::":ti_.',:'

J::

::i :?;
\

.o' ff:iJl::;iii,T;:i#*;:;:;;il',J:';;:ff (b)

,*J,'

capaciiv in oivision ts.,n,i,, co,pany a-s a

lo Le the etlecl orr the company

{ro.i-l lhe markei-

ive sales al lrearly cost savings

S.?

'(9
(l)
(2)

H,qprt)

t,(a)'

(op

managernent 6

'..Cgmmeni upcn op ntanag'emertl:_ gulating.R & D furicrion by rhe rgp d.s igced on acc:unt.of glopailzation ?
2.- (a)

)'

pror,-ided to Susinesj

3J'ey
t '{o)

]}i:t-'::l:p

.ralsferpnrclng andplofir s.haring:appioach ? Narra(e mbrits

aiwaws'. various

v/q.

ini:, plementation therecf, It

IVianaE'grnEnt Ccr:.l.-c!, consiCercd alement. anci g:ive y.ou:r comments, the Business W-o:;1, in suooorl of your

- lZ

<t-: !'

' xpiairi'Responsibility centre'ar d, map {he prr,cess of e'.-ol.-::c:i thereo[ Irom one slage io anoihe:r,vrith lhe hetp of iuustraiion, - experie;:.:ss of the corporates.

-,2

"rr,.

{r'g'n?::*a o{ ihe

plan of an Management C ntroL:system::r a c<;rpc=te encaged in an1. segmenis ofideal services s-ector, r,"t ,rfoi" lag}o"n, ,peci:rcalr1,,

,;.,

t?.

l0'

engaged in diversitied activilies consisting ot 9 i:rdependent prorrr ln cu.ii,. to - : - - -p i-rf ils Managcrs. Irlarrale tlie charlges thal arc needed in conirol systems, craclices anc proccdures, gi'..ing {,hc rr:asors. ,

^{anejal'Lld' ccn lers deciclcs lo seli one o[ its ciirrision - profit

}

OR

l1'tlii\

OYEII

f. t,L

.t

., v.

..

DtvisionY'

lnve.stment

25 lralds

lC,l'L:rklts

iq.t.i.l

Analyse and c6ririnent upon performanc+ of boti:.ttr: divisions- : .': oR' c-Vqlue AdAdd'5,V A) technique for apprais al ohs A, B. ahd (). Company charges- 6?/o for sets,while co-npu{ing EVA'rOievanl data are ...
_ ... l-:.-

"

)o:{
li
I

Particulars
Profit
Gurr_ent'Assets
I

Division A -Di'vit-ion B* A**', .R* II.*T

.360

..8-

320 360
1600

?20
. BO0

400
1600

240 '?6c

-_ '2@
ta(uu

FixeiA*ssets

t600

lSco

20m/

* B::dgeteti **Actual $.s- lii Crores) . .- . Orr the basis of datagiven above :. (-) Tabulate budg,eted. and actualRei':rn c:n..ilssets.Joreach of thedir:isiurs(b) ThtiuJatebtldgetedanci iraeEddedforeaCro{theciir"isions(c) Ccimmenl ripon bottr t io:rlhe results.

12ne-wl1'dive:sified activity ? The

ce-rt.re

cf alurn-iE-lrn ,r'r-oducts. cilversiles intt

upne.vpianty--riemso as to accornm6ciate

apr:ioach.

cc
:

coniinue n,i{h existing cost

.-'roR 12' GBMLid.currentlyengigedinmanuf".ho.oinre<liumengrineeringproducis,ia):es gver a company engageci in Te .:corn Soctor. De aigrn an iniograteci.i{anagement Cortiroi Sysiem foi'GBM.Ltd. as:'rming,other coyn:ariyhas meiged inlc GBIr{ Ltri.
j---<.'i=S-....-.:

,uL'

-.a'
,(.

'.t

i.

NB..

the various

salient'

Q.2.

Centre?

List and Cxplain differen( types bf respo-nsibilif"

*l

B.

Return: oa

for

Soth

Analyse and .o,nmeni on- diuGionaL p.rE;mar#..rf-' op;;;;"d E.;;ii;;;;;#'":[:,',,,-i#"'#XT3:e or each witli respect to Operational Excellcnce aird Mark"t,,,g e fi*,i*;;.att'

a'6- l/Equrlerare

the diffcrcrces anrong floiro*.ing t1,pcs of Audiis:

t)

a)

Finar,cial :A.udit (Statutory)

CostAudit

trvV

d)

llanager:rent Audit.

{2.7.rr/ O:garii4rtions with Business Divi

'

Di;isio;oicrr,,.nii".

possiblc d-vsflunciion. t{ow 'rolc ol'Conlr<.rller *,[rich suits your suggcsrion .

car_r5in* a

"-r*.i**

olls-

tu,

x* VLz

fine

I TURN OVER

i)
iD
r

ii)

Q.IO.

,I'
(

dardit..l itiiiiriibri

- Actual s8z.

t2552

7tl
31

l4

1732.9

!t) rxpial: b)
QII

zi'33.O4

vzith

-2:tc3.3g'::.

2t218
i41.1_30

mcaningful foiexpe.-is" rbnt oi.

I ll

ls

more

ffifJ,Jfr:',f;
\Vhy or why noiZ

q; *ii-*.oonsibte ror

arr overheari expcnses inciuderi?

Anlil & Cornparry compiises of fi :on'a. pcrformancc ;nctrit is ret,,.n

-:----.I--

800
4C0

ton
vv J.t, <Lu(l tuilo rcsp_ec(lvbly

u0
l.s

100

i 000

--2Iq asseLj curTent

adequatc.

800
800 ahd fixcd asscts should

a) b)

'As .Financial Controllcr of Division A,

I'e;fonnanc*.
.

corirpare Actual.

v/s. Budgctcci
ij

-I980

1989

t36
6
_.

1993

rs.qd

392

I8'
2.87

N.A.
,

...".ru.Pvr

oltu.tt.IfiS-

I
.

ohrqru@_{yrl lf_u4-lPer otplants

xerurn
I -:'- i --^-,.-'--: ^ta
'

0.7t,,
2

637 26 3.87 . o-9s

802 24 3.31 0.98

TOR

-J_La,

.l3g
I3
2E33 . _i7-9%'
57.5

l4
334D

2224_

_-,__o_-.__

i\rln p.vuuwu \vuu, Face value Rs l n70/r;ira(

43.52-L

lU.

dd

<

4nt%
63

in

I9S4, lai,dev i.razareeH)

_ IIT i llM

cd

I TURI{ ovER

,*

tll"
,

b)

gaia5.fi4argiris, lqsi ef produced and any other

I

-j _. 'laigc cortpany (hgaaed by. experienccd. and suclr a,protlgln 'ar.tecllng: nianagemerit ct ni r.61.

lj

oR.

EIU

should manufacturirrg, rnarketi .::-nrTribjriry ccnrrcs ro inir.,c" ;;ri, tvtlat sfror.rld bc the pcrforman." .r'*li"

Io',

izec r.-s ion and

++,

rial i*,

*++++++r++++

Factory Marketi

l7

0J0

l.v

How does it relate to Strategic

l
;'c: rr llrrc4d Buu.gefin

l:iit Caslr,ro*,V:.
C

-1./Wi,ar

Strategic Business Llnit? What a ' p..r.,,,i*,,""or3sJ;#,il?'[n.,*

ir- rr

ffixlS#3i,1*i.Ht:,roT
transfer

How is a professional and marketing donc

9. k1Ho,,
don: How is bqdgeting

TURN

Ot't:..:

i,:

&."10.

s Balance shEet.is girien-b,elow Rsin-lacs

Eguity l1Yo Debt

. Net Woikin! Capital r00

400

Fixsd Asset

3 00

j:t j:r--:

(i)

l.

Division B. will company as markel... unit. What ivould be the effect on the company acrty) if A buj,s flronr the nrarket. for :lr^.: alternative sales at yearljr cost savings nasc trom outsldc?
'.;,

excess capacity in

l:i

'.

il.:*iG:96{6*10;

3.

iz.

a)' Estimate profits at all tluec levels of capacity utilization.

:

13.

Ililncr

A TV delear'ship, Vec.na Tclevis-ion (VT) is org (CTV); E.!a;it-,a,td 'Vhitc (tsWi TY Srlrs ( neaded' b]) a'rn-aougef. TV.-in sdcition- to whilc purchasing ncw scheme) l/ ",,.,o*eri t4 ilO (finan-cs?j b1'cash Rs- 20'00, ba for.ns

for Services (by SG). Market prices ar tixed and l-4 times:(Sp) BTV pays a seirrice commission of,Rs-250.'per'TV'sold. Overhead 114' allocations per sale arc : CTV - Rs 835; BTV - Rs 665 ;'SP - R5,'32;'SG -' RS'
Rs 470

a)

profit of, Treating each as an inCependent Profit Centei, trrive'at Sales:Revenue,, total cdst and
cach profit center. Can each of theSe profit center survivc if they were indepehdent business entities. Also calculate Gross Prcfit and Net Profit of each.

b) c)

OR

Ii.

For Effective strategy itnplerncntation Soniya Lt deccntralizatibn basi.s and each ciivisicn is head manufacturing, puichasing fitnance and Mark Perfonnancc measuretnen( is return on Invesln-t i{o four quarters and at the begir:ning c,f each q and budget for follou'ing quarter illay be revis under. Figrrres in Rs. Crorcs

4*
Can.2.62i-11.

{'I
tl

(oLD & REVTSED COURSE)

(a tlours)

,NA/

!!ts-9758

I\

.Y
.t )

/'

I Total Marks : 6t)

i-----^+.1

N'B'

: (11 pttenrpl any six questions out of Oueslion

{21 (-r)

A,trempt a.y ir,\:o quu'srrons of 'eubsrion r'los. I0 to l2 each cairying 7 r,tarks. QL,estion No 13 is cr:npullory carrying t 0 lvlarks.

Nos. 1 to g cach carryixo 6 Msrks.

'

which level or Manasers are invotved

ir: it

liorv doee MGS cirer

',?,ffi,%*l:.il,il::::Xoi'svcrenr
Brielly describe Bcspcnsibility c:r;rler, Encineered E::pen (;er]tcr, Profit Cen!er, l-{o..v is the For.iorF,ilnc0 of llro Head
t,trriie r ril ra I

rron@

2 v

3t/'l:-\,j,y SBU is a piofit centcr hut every piofit center,nay

condilions pi-crjuciicrii,
fui

rrketirtq and Service

'' rlli:lll:[.,'iarkeil;a:rt'rlrri;nsiierpri:esr.,csl
irlu;i,uri! r.,i f:.xc3ss.;: i:ailirg:: :f :apaciir. ?

ippro;;riate? Ho*dorvddeal ivit.,:heconditiqnof LirnitedMark _ -

;:4ir'ata'eo'Sanizaiicr'i sirr,'ctureu"aM"".Eo';:nt coriirol lnrplicationsolc orp-;:zt2Levelstraieg;es?4

9. \/r/rit r t

n any two of lhE following

h to

Card L/ 'e Conti'ols. c-/"

Sccre

M,rxeling b7 prolessionatservice Organization.

:_

10
3cr

i-.tl-'li?li
l,,1.ri:;ii:!

ii'ff:.1;;T
Cosl

lf

i::::;l['_:pacitv
Rs 40

rt

seils 2o,0oc unirs nov,,. pri:e per un,r or Rs.100.rhe cosr per

i.4anuiaciur,ne Ccst Selirnc t)csl

trs. .jU (3U% ltxedl

Acirilis..;

Rs 10 (40%

fixed)

iiorr Ur-s

Iis
tis

1C (50% fixedi 30
+r

,..,.ouid

lallby SjL arrj,i.ateriat cost wo!ld go up by 5%.

its tull c"p:city ?

11

rpany X al ihe end ol l,-.i vear is as lollows :_-

-\ales
f",lalerial and olher vanable cosls Irrplqy g.' and olher .lixed

Budget 4m
240 60 20

(All ligures ere ln lls. Lacsl

Act.-ral

37O+
218
60
1.r^'

jatlcs

cosls

l-.

v,,

_,rrOr:

Operaling prohl
lJel Working Cap,ia; "

Fr\ed Assets 80 : 74, Fcr this divrsion, whiclt areas oi parlgr:rro;rcl v"ould you rike invesrigare ro a-ur wrral wourd be the correcrive nction, i, any. you wou[J like lo put in frf".c i"

2fn

7q/ xF.,/

rruBN ovER

,t \arl

con. 2627-MS-975S-11. Band divisions-A. 6ind C. Their capacilies 12. Company A has three div

anc olher cletait: are

beiow:-

i"rrr*tffiffii,ICosl ol Production ln lls. :

- Malerial Cosl per unit - Processlng Gosl per unil Annual Fiied Co'stRb.

B
10.000

_c10.0ro
1O

-i0

Fls. 1U
R-". 10

Rs.'10
Rs.

Rs.2O

8s.2,00,000
Rs.-i0;0O,O0O

H:;.2,00.000

.,1s.1.do.000
Fls. 10.00.fi)O

lnveslmenls.: - Fixed Asset

-

Rs. l0.fl).O00
Hs. 10.@.@0
l5-o

Cuponr ASSet
ROt

El. r^

^n,0o0

D.

10.O0.OOO Ztto/"

1Oolo

tr t

Cshouldchargetoanextelnal custoiner? lfduetoconipetitiiJnil-canseil lheProducl alapriceof Rs.200.

what prico per unil, the p'66uq1 should be transleled.lr.om A lo B and from B to C. Also whal rninimum Price

3.

A cot',roany two diiis'tons Divbion A and DMpion 9. The linancial details

-l D ivision A lor
4GJ

two years are-given b'eloiv

:-

5e,eS Variabte Cosi

Flxeci

s00
200 , '5C 150
.?n

240
160 .40----'--

Cost-

PBIT . intefest
PBT
Tax@40% PAT

120
tl 109 44 65

120
48

BALANCE SHEET

FiieCASs-et--Nai CurreniAsset
'j-otal Assets

--': --

zt ru

2C1 1

2CO 600
20t0
600
-as0

4OG<;:..-=3J
150

5m
201

Division B :
C^l^^

tr'l
IZU

\/ariable Cosl

460

240

Jtu

F,:ec Ccsi

BO

;5lr
!n'r:'--s Tax PAT
i

160
c5

/:-l
'r

130
qD

b0

78

-G
2C1

BAINNCE SF)EET
\

F;xeC

Asse!

\
]

201

4CA

500

f.lel Current Asdet

200

30c
BUC

f'00

should be judgedon the basis ol EconimicValue AdCed which direciycontritrutes tc the wealth ol the sharehelders. His divirion has orowr,'by 25k on sales anJ assels rvhere as.DivisiorrA hns conlracled during lhis period bcth in sales and size of Assels. Cosl ol Eq' lt)' is 1 07o- Economic value Added can be calculaled as { PAT - Cost of Equity in % x Equity share Capiiat J. Calculate Return on Total Asset lor bolh Divlsion A and B for Year 2o1o anci 20't 1 . Also catculate EVA cl born divislons lorYear 2Ol 0 ard 2Ol 1 .

Managemenl evaluates lhe perlormance ol lhe Divisional Manaoer on the hasis of Relurlr on Total AsselsManagerial Compensaiion is linked to ROTA. Based on lhis criterii ihe Divbioral Manager A was given lrigher incentive compensation as he has improved the FIOTA of lris Divrs':n. ftrranager of Divisiorr B tell it was ur-' :rr to iudge him on this criteria- He hes icjentified a nerv inveslment oppcrtunity snd improved the sales. He lelt he

es iudging Divisional lulanagers on ROI could lead to

I "',