In Value Chain analysis, business activities are classified into primary activities and support activities.

Classify the following

(i) Order processing and distribution- Primary Activity
(ii) Installation, repair and parts replacement -Primary Activity
(iii) Purchase of raw material and other consumable stores- Support Activity
(iv) Transforming inputs into final products -Primary Activity
(v) Selection, promotion, appraisal and employee relations -Support Activity
(vi) Material handling and warehousing- Primary Activity
(vii) General management, planning, finance, accounting -Support Activity
(viii) Communication, pricing and channel management- Primary Activity

ASSESS whether WDG should join the Paper Tubes market as a performance improvement strategy?
Ans: thru Porter’s 5 forces analysis (pg 14)
es. Classify the following under the more appropriate activity.
See Q c pg 5.36 scanner

See Qa pg 5.25 scanner - Q: What are the focuses of Theory of Constraints ? How it differs with regard to cost behavior ?

Throughput Accounting
treated only direct material as variable and all labour and overhead costs as fixed
Throughput Accounting Ratio: Contribution per Bottleneck Minute
Factory Cost per Bottleneck Minute
If the TA ratio is greater than 1 the product in question is “profitable”
See Q b pg 5.34 scanner

What qualitative factors should be considered in an decision to outsource manufacturing of a product?

(i) Whether the vendor will acquire the technology and will emerge as a competitor?
(ii) Whether the vendor will be able to maintain the quality? If the vendor fails to maintain the quality, will the company lo
(iii) Whether the company will lose its skills in manufacturing the product and it will find difficult to resume production inte
(iv) Whether laying off employees will demoralize the work force?
(v) Whether the price quoted by the vendor is a penetrating price? If so, it is likely to increase i.e. Whether price will increa

TA Ratio
Machine 1 133.33%
Machine 2 200%
Machine 3 66.67%
egard to cost behavior ?

lity, will the company lose customers?

o resume production internally?

Whether price will increase.

See Q c pg 5.52, Qa pg 5.63 scanner

OEE Ratio=
Availability Ratio per shift [Total mins per shift (-) Total Time Loss (in Minutes)
x Performance Ratio per shift Standard Time Required / Actual Time Taken (excl l
x Quality Ratio per shift Parts Accepted per shift / No of Parts Produced pe

OEE lesser than 85% is not good

(-) Total Time Loss (in Minutes) per shift] / Total mins per shift
red / Actual Time Taken (excl lost time)
hift / No of Parts Produced per shift OR (Qty produced (-) Qty loss) / Qty produced
See Q c pg 5.72 scanner

Life Cycle Characteristics AND strategies (TABLE) - Pg 172 & 173

Phases in Life Cycle of a Product

Phases - Characteristics
Introduction - Product is launched. Profits are almost non existent.
Competition is almost negligible
Growth - Sales/ Profits rise rapidly. Competiton enters. At phase end, profits begin to decline
Maturity - Sales increases but at a declining rate. Some firms extend their product lines with new models
Saturation and decline - Drop in sales volume, need for product demand disappears. Better and cheaper substitutes are av
See Qa pg 5.237 scanner, Qc in pg 5.238
th new models
r and cheaper substitutes are available in the market
Break Even Point units (ABC)
FixedCost+(SetupCost×No.of Setups)+(EngineeringCosts×No.ofEngineeringHrs.)
Contn p u

Break Even Point (No. of Production Runs)

BreakEven(units)
Production(units per run)

Probability of profits being greater than 40000

Calculation of Z for probability =

Probable profit amt - Profit amt calculated by data given
Std deviation amt

Std deviation amt = SD units x Contn p u

Probability = 1 (-) Z's value in table

See Qc pg 5.110 scanner

Sunk cost is irrelevant in decision making, but all irrelevant costs are not sunk costs." Explain with examples
For example, a comparison of two alternative production methods may result in identical material costs for both the altern
case, the direct material cost will remain the same whichever alternative in chosen. In this situation, though direct materia
production, it is irrelevant, but it is not a sunk cost. Irrelevant is only with respect to alternatives being considered and not
for sunk cost there is no further cash flow. Cash flows have already been incurred
 lain with examples
material costs for both the alternatives. In this
situation, though direct material cost is the future cost to be incurred in accordance with the
atives being considered and not for fund flows whereas
Determine the Price where Profit is Maximum
Chg in Price
Price= Price at Which Demand is Zero (-) Chg in Qty *Q

Find "Q" i.e Qty demanded from "MR = MC", and apply that Q to Price formula above
Chg in Price
MR= Price at Which Demand is Zero (-) 2* Chg in Qty *Q
MC= Amt will be given

True Economic Value (TEV)

Extra cost to be incurred for this alternative -10
Savings from this alternative 15
5
Price of orginal 500
TEV 505

For Calculating No. of labours hours thru learning curve method

Cal average time per batch for the first 25 batches by using learning curve model = Time required for first batch (hours) x n
Note : Log 10 = 1, Log 100 = 2, Log 1000 = 3
Cal the time taken for the 25th batch by : Avg hrs for 25 batches as cal above x 25 batches (-) Avg hrs for 24 batches given
DL hours for first 25 batches = As calculated above i.e average time per batch for the first 25 batches
DL hours for next 25 batches = Time taken for 25th batch x 25 Batches

See pg 281- Independent situations

Independent Situations
The company makes original equipments and does defence contract work. There are other companies which also undertak
The product made by a company is new to the market. It is expected to enjoy a longterm demand. Competition is expecte
'A' is a new product for the company and the market and meant for large scale production and long term survival in the m
C'
D' is
is aa new product
perishable to the
item, company
with and80%
more than the of
market. It has
its shelf life an inelastic
over. market.
- Any Cash There needs to be an assured profit to cove
Realizable
Value
Stock of processed ready-to-eat product, whose shelf-life will soon be over in the next 2 months. The product is going to b
A company sells a homogeneous product in a highly competitive market. - Going rate pricing or market price
B' is a new product for the company, but not for the market. B's success is crucial for the company's survival in the long ter

Pricing and Product Life Cycle

Introduction Stage Skimming Policy with high prices, but lowPenetration Policy to enter the market and gain a high sh
Growth Stage Reduce price to penetrate market furtheNA
Maturity Stage Price to match or beat competitor Retain higher prices in some market segments
Decline Stage Cut price if not repositioning Some increases in prices may occur in the late decline sta

In periods of recession, a firm may sell its articles at a price less than the total cost but above the marginal cost for a limi

It may also be justifiable to sell the product at a price below marginal cost for a limited period provided the materials ar
stocks are huge and market prices have fallen, reduction results in increased sales of other products having larger profit

See Qc pg 5.237 scanner, Qb pg 5.238, Qa pg 5.239

d for first batch (hours) x number of batches with power to Learning coefficient

g hrs for 24 batches given in Q x 24 batches

panies which also undertake such projects - Sealed Bid Pricing

nd. Competition is expected very soon, since the product will be desirable to most customers - Penetration Pricing
ong term survival in the market. Demand is expected to be elastic - Penetration Pricing
e an assured profit to cover high initial costs and the usual sources of capital have uncertainties blocking them. - Skimming Pricing

s. The product is going to be discontinued. - Any price that the market will pay (even below variable cost any cash received)
market price
ny's survival in the long term. -Market Price or Price Just Below Market Price

market and gain a high share quickly or to prevent competitors from entering

arket segments
occur in the late decline stage

he marginal cost for a limited period

provided the materials are of perishable nature,

ducts having larger profit margin
them. - Skimming Pricing

any cash received)

Traditional cost mgt limitations - Ignores Competition,Excessive Focus on Cost Redn, ST Outlook,Ignore Dynamics of Marketing
Stages of strategic mgt-formulation,communication,implementation,control
Necessity of SCM-strengthen strategic position,Develop alternate measures,managerial use of cost info,clear cost structure
Diff TMA & SCM(VCA)- ST/LT,Internal/Int&Ext both,Vol based/Not vol based,Riskaverse/Risk taking,Single costdriver/MultipleCD
Composition of SCM-Strategic Positioning Analysis,Cost Driver Analysis,Value Chain Analysis
Strategic Positioning Analysis-Org Values,Culture & Sys,Ext Envt (PESTEL & Porter's 5 forces),Int Envt(Resources and Competencies)
Cost Driver Analysis-Structural CD-org factors wc affect costs of firm’s prod, Executional CD-based on firm’s operational decision
Value Chain-a chain of VA activities;prods pass thru activities in a chain, gaining value at each stage.Focus on sys,& how i/p r chngd into o/p
Primary Activities-activities that are directly related with creating and delivering a product to the end customers
Primary Activities (Value chain) -Inbound Logistics,Operations,Outbound Logistics,Marketing and Sales,Service
IL-RM handling & WH. Op-M/c,Assem,Testing products. OL-WH & dist of FG. M&S-Advt,prom,pricin,Chanel rltns. Servic-Instal,repair
Support Activities-
Support Activities (Value Chain)-Procurement,Technological Development,HRM,Firm Infrastructure
P-Purch RM M/c Supplies. TD-R&D,Prod & process impro. HRM-Recruiting,training & Dev. FI-GM,Acc,finance,strategic planning
Strategic framework for VCA-Industry Structure Analysis (Porter’s 5 forces),Core Compe Analysis,Segmentation Analysis
Core Compe Analysis-cost leadersp/product diff. 3 tests-End-product benef,Acces to wide variety of mkts, Diffi for comp to imitate
Core Compe Sources - Resources Capabilities
Core Compe-VCA for Comp Adv-Validt CC in curr busi,Levrg CC to VC of oth exis busi,Use CC to rcnfgr VC of exis busi,Use CC to creat new VC
Segmentation Analysis-Idntfy seg variabls & categ,Cnstrct a seg matrix,Anlys seg attrctvns,Idntfy KSFs,Anlys attrctvns of broad vs narrow
Distinctive competencies-Differentiation Advantage (Sup Quality,Sup Innovation,Sup Customer Response), Low-Cost Adv
Diffn Adv-Sup design,knowhow,perfor etc. Sup after-sales service. Expanding product range ▪ Sup packaging. ▪ Making brand strength
Diffn Adv Risks involved - work only when customers are not price sensitive, ability of competitors to replicate
Low-Cost Adv-Copying designs,cheaper mater, Red lab costs.High-vol sales.Disc on bulk purch.Govt support.Learn & exp curve benefits
Lost Cost Adv Risks involved -any price reduction will be followed by its competitors, quality of the product could be impacted
Porter’s 5 forces model-buyer’s barg pwr,supplier’s barg pwr,thrt of subst prodts,thrt of new entrants,intra industry comp
Porter’s Value Chain-technique to identify and analyse processes that are of strategic significance to the organisation.
Value chain approach for assessing competitive advantage-Internal Cost Analysis,Internal Diffn Anal,Vertical Linkage Anal
Internal Cost Analysis-Idntfy firm’s VC proces,Deter portion of tot cost,Idntfy cost drivers,Idntfy links b/w processes,Evaluate opp
Internal Diffn Analysis-Idntfy customer’s VC proces,Evluate diffn strat for enhanc customr value,Deter best sustnabl diffn strat
Vertical Linkage Analysis-linkages of internal processes within a firm but also thru linkages b/w a firm’s VC and of a suppliers/users
Value shop model or Service value chain-aims to serve firms from service sector.Deals with probs,figure out main area requiring
service & finally come with soln-Primary activities -Problem finding,Problem solving,Choosing among solutions,Execution and control
Value chain Benefits-eliminate NVA activites,analyzing other firms,developing compet performance,focus on core area
Value chain Criticism- NA to service industries,Complicated model,ignores value networks,time consuming and expensive
Mgmt Acc's role- ABC, Benchmarking, re-engineering, target costing, life-cycle costing, economic value analysis, TQM and VC analysis
Sellers’ Market to Buyers’ Market (Reasons)-Globalization,competition,Excess production & services,Ease of global travel
Cost of Quality= Cost of Control (Prev+Appr costs) + Cost of failure of control (IFC+EFC)
Cost of Quality (Views)-Higher quality= higher cost,Savings > cost,Costs are excess to those if product was built first time
COQ (Components)-Conformance Costs(Prevention Costs,Appraisal Costs)Non Conformance costs-(Int Failure Costs,Ext Failure Costs)
Prevention Costs-Qlty planning(plans for quality,reliability,operations,production & inspection),Qlty assurance,Supplier evaln,Dsign review
New product review,Error proofing,Capability evaluations,Qlty impro team meetings,Qlty impro projects,Qlty edu & tr
Appraisal Costs-Verification(of incoming material,process setup&products),Qlty audits,Supplier rating,Checking & testing purchased G/S
RM WIP FG Prodt & Packin inspection/test,Field test,Prodt/proces/service audits,Calibration of msr & test equip,Cons't chrgs, Prodt accptnc
Internal FC-Waste,Scrp,Rework,Failre analy,Delay,Redsgn,Shrtgs,Retst,Dwngrd,Dwntim,Lak of flexi,Repairs to Manu Eq,Corr of bnk stmt
External FC-Repairs,redoing & servicin,Warranty claims,Complnts,Retrns,Loss due to sales redns,Envtal costs,Disc on defects
PAF Model (Steps)-Find No. of failures in sys,Quantify the data,Chart the data,Combat the weak spots,Follow & evaluate peformance
PAF's Iceberg model-Above the surface-Rejects,Rework,Testing Costs,Waste,C'mer returns, Inspection costs, Recalls
PAF's Iceberg model-Under Water-Excs OT,Billing error,Empee fluctn,Field service exps,Planning delays,Devp cost of failed project,
Late paperwork,Acces Inventory,Complaint handling,IT sys costs,Incorr compltd sales order,Unused capa,Time wt dissatisfied c'mer
TQM's CSF-customer’s needs,continuous improvement,role of everyone,common aim,tasks are accomplished, teamwork
Six C’s of TQM-Commitment,Culture,Continuous Improvement,Co-operation, Customer Focus,Control
TQM Benefits-Good product mix, ensuring quality,introducing EDP,empowering empees,customer satisfaction,rewards
TQM (Criticism)-focus on documentation,ill-measurable outcomes,emphasis on quality assurance, internal focus
Deming’s Methodology-Create constancy,Adopt new philosophy,Cease dependence,single supplier,Improve constantly,training,
leadership,Drive out fear,Break down barriers,Eliminate slogans,Eliminate MBO,Remove barriers,self-improvement,transformation
PDCA Cycle (Deming Wheel)- Plan-Establish objectives, Do-Implemet, Check-Measure, Act-Take corr action
Business Excellence-a philosophy to dvlp & strngthn mgt sys & processes of an org to improve perf & create value for stakeholders
Business Excellence(Importance)-develop qlty mgt principles;minimize waste;increase empee loyalty;achieving exclnc in everything
Business Excellence (tools/models)-EFQM,Baldrige Criteria,Singapore BEF,Australian BEF,Japan Quality Award Model
EFQM Model (3 Components)-The fundamental Concepts of Exlnc,The EFQM Exlnc Model Criteria, The RADAR-logic assmt framework
EFQM Model (The fundamental Concepts of Exlnc) -Adding value to c'mers,Creating a sustainable future(thru TBL),Dev Org's
Capability,Harnessing creativity & innovation,Leading with vision inspiration & integrity,Succeeding thru talent of ppl,Sustaining o/s results
EFQM Model (Model Criterias)-5Enablers [Leadership,Strategy,People,Pship,Processes], 4Results-[C'mer,People,Society,Business]
EFQM Model RADAR-results reqd,approaches (plan&Develop),deploy approaches, assess& refine approaches & deployment
Baldrige Criteria-Leadership,Strategic planning,Customer and market focus,Workforce,Process mgt, Business results
TOC Measures-Thruput:[(Sales-VC)/time]Invt:[Assets i.e R&D,RM stock,FG stock,FAs]Op-Exp:(DL,Oper & Maint Exps i.e utilities,Depn)
Goldratt’s Method for Improving Performance-Identify Bottlenecks,Exploit B,Subordinate & Sync B,Incr Capacity,Repeat process
Thruput A/c (Adv)-Reduction in inventory,More productive machines,More flexible,Better c'mer service,Better product mix
Thruput A/c (Disadv)-Focus on ST goals,emphasis on increasing sales & not quality,Push approach,Might result in loss overall
SCM-It comprises of vendors that supply RM,producers who convert mat into prods,WHs,distribn centers,& retailers sell to ultimate user
SCM activities-Production Planning,Purchasing,Material Management,Distribution,Customer Service,Forecasting
Supply Chain Mgt Key processes (GSCF)-CRM, SRM,CSM,Demand Mgt,Order Fulfilment,Mfr flow mgt,Prod Devlpmnt,Returns mgt
SCM Process-Plan,Develop(procure),Make,Deliver,Logistics,Warehousing
SCM Benefits-Better Customer Service,Better delivery,Improves productivity,Minimises cost,Reduces inventory holding
Supply Chain (Types)-Pull Model,Push Model, Upstream Supply chain, Downstream Supply chain
Pull Model-produced in response to the actual demand. Supplier-Manufacturer-Distributer-Retailer-Customer.
Push Model-C-R-D-M-S, Ex-E-Commerce. Co's fulfil customer needs, carry fewer invntry, and snd products to mkt more quickly
Upstream SC-Rltnshp wt Supp(Supp Strtgy,Sourcs,No.of supp,Cost Qlty &Spd of Dlvry,Mk/Buy &Outsor).Use of IT(E-Sourcin,E-Prchsin,E-Pymt)
Downstream SC-RM(6 Mkts-Internal,Referral,Influence,Recruitment,Supplier,C'mer)CRM(Analy of c'mer,CAP,CLV),Use of IT, Brand strtgy
Rltnshp Mkting 6 Dimensions(Gordon)-new value fr c'mers,role of c'mers,bsines r vsualsd,coop effrt bw B&S,CLV,chain of rltns in org
CAP-Analys c'mers base & split into segments, Cal annual rev earnd, Cal annual costs, Identify & retain qlty c'mers,Eliminate unprofitable segs
CAP (Customer's Classification)-Platnm C'mers-Most Prftbl,Gold C-Prftbl,Iron C-Low Profit bt Desirable,Lead C-Unprftbl & Undesirable
Customers Lifetime Value (CLV)-NPV of the projected future cash flows from a lifetime of customer relationship
Service Level Agr (SLA)-agr b/w c'mer & serv prov.Can b legaly bindin frml/infrml cntrct.May b b/w sep org/diff teams of org
Gain sharing arrangements-supplier agrees to perform its side of the contract with no guarantee of receiving a payment.
Instead, any pymt received is based upon the benefits that emerge to the customer as a result of the successful completion
Outsourcing (Adv)-cost savings,free from investments in technology, infrastructure and people,flexibility in staffing
Outsourcing (Disadv)-risk of losing sensitive data,loss of confidentiality,Control outsourced,Inexperienced workers
Outsourcing-Factors to consider-Vendor may bcm competitor, Quality, Resuming prodn difficulty, Demoralise workforce, Pricing
Lean System- method for waste minimization without sacrificing productivity within a manufacturing system
Lean manufacturing (charac)-Zero waiting time,Zero inventory,Pull processing,Conti flow of prodn,reducing process time
Waste (types)-Overproduction,Over Processing,Inventory,Waiting,Motion,Transportation,Defects
JIT-Spare part/Mat on exact dt&time,Straight deliv to prodn flr for imm use,Engineer staff vst to supp sites,Instal EDI sys,Droppin of
products at specific mc, Shorten the setup times,Streamlined flow of part from mc to mc,Emplees training,Sevrl alteration in acc sys
Kanban card & working cells-To achieve extremely low product defect rates & Reduce excessive quantity of WIP inventory
Kanban Card -a notification card that a downstream machine sends to each machine that feeds it parts, authorizing the prodn
of just enough components to fulfill the prodn requirements being authorized in turn by the next machine further downstream.
Group machines into working cells-A WC is a small cluster of M/cs which can be run by a single mc operator. This individual mc
operator takes each output part from mc to mc within the cell; and thus there is no way for work-in-process to build up b/w M/cs.
JIT Sys (Impacts)-Elimin of all wastes(Time,assets,excs inventory),OH costs decline(mat handling,qlty inspn, WH rent),Product price inc
Traditional performance measure (not JIT)-Key msrmnt is Mc utilization, piece rate tracking for pay,DL efficiency tracking,
JIT (Operational measures (not financial))-Inventory t/o,Setup time redn,Customer complaints,Scrap,C'mer service,Ideas generated
JIT (Performance measures)-Mc utlzation msrmnts discardd,No piece rate trckin,No DL effi trackin,Set up time redn,C'mer complaints
investigated imm,Scrap generation reduced,Track of full COQ,Highest customer service,Continuous improvement through new ideas
JIT (objectives)-Meeting customer demand on time,high quality products, products at the lowest possible total cost
JIT in Production Process-Products recd directly at prodn floor,Setup time minimized,WIP reduced,Workers are trained
JIT features-Mat-handling cost reducd,Lab idle time reducd,Elimi defects,Rspnd to c'mer demand faster,Carefully select suppliers
JIT (pre-requisites)-Low variety of goods,Vendor reliability,Good comm,Demand stability,TQM,Defect free mats,Preventive Mainte
JIT Backflushing-no data entry of any kind until a FG is compltd. FG "x" by all compnnts of materials listed. (-)Opg FG. Get Clg FG
JIT Backflushing (problems)-Incorrect Prodn reporting,Incorrect Scrap reporting,Imposs Lot tracing,Inaccurate inventory records
Kaizen Costing (Minor Improvements)-continual exami & improvement of existing processes. It invlv wrkrs frm multipl fnctns
and levels in the organization in working together to address a problem or improve a particular process.
Kaizen Costing (Benefits)-reduces waste wrt empees waiting time,transport,excess invntry etc;Achieve cost redn thru small incremental
impr & cost savings;Looks at functions & processes at all levels of org and requires participation of all empees;less no of defective prods
Kaizen Costing (Principles)-gradual improvements at acceptable cost,collective decision making,no limits to improvements
setting standards and then continually improving, eliminating waste,Involves all employees and all areas of the business
Kaizen Costing (Implementation)-Q is“Can we eliminate waste? Wastes like Unnecessary movement of material & men;Unwanted part
in a product;Defects which involve extra cost in terms of reworks;Waiting time;
Kaizen Costing (Other matters)-Can we elimin some durability?Can we minimise dsgn?Can we substitute parts?Can we tk supp’s assistnc?
5S (a wrkplc org mthd)-Sort(eval neces items),Set In Order(Arrng),Shine(Clean &safe wrkplc),Stdize(high stds),Sustain(do w/o being told)
5S in Lean Product & Process Devp-damagd/torn attract eye.Old equip/files hides new equip/files frm eye & forces to ask which to use
TPM-keeping all equipment in top working condition so as to avoid breakdowns and delays in manufacturing processes
TPM features-involve workers at all departments,Machine operators see minor maintenance tasks,Specialised maintenance
staff see critical issues,Achieving zero losses,producing defect free products,Proactive maintenance,Workers training
TPM phases-Preparation Stage,Introduction Stage,Implementation Stage,Institutionalizing stage
TPM pillar/principles-5S,Autonomous Maintenance,Qty M,Planned M,Focussed Impr,Early Mgt,Edu & Training,Office TPM,Safety
TPM Performance msmnt (OEE-6 big losses)-Equip brkdwn,Set-up,Idling stoppages,Reduced Speed,Reduced Yield,Rework
OEE % per shift: Avail x Perf x Qlty. ideal values for the OEE component measures are A>90% P>95% Q>99%. OEE <85% is not good.
[Tot mins ps(excl loss time)/Tot mins psxST reqd/AT tkn(excl loss time) xParts Acceptd ps/No of Parts Prodd ps OR (Qty prodd-Qty loss)/Qty prodd.
TPM Maintenance types-Breakdown M, Preventive M, Corrective M, Maintenance Prevention, Autonomous Maintenance
TQM & TPM connection-reducing costs,customer satisfaction,slashing lead times,workers involvement,Training& Edu
TQM & TPM(Diff)-focus-on qlty of prod/on equip used to produce;TQM & TPM can both result in an increase of qlty bt approach of each is diff.
Cellular Mfg-a Sub Section of JIT & Lean System.Product moves from one cell to nxt,each station completing part of mfrg process
Cellular Mfg (Goals)-To move as quickly as possible,Make a wide variety of similar products,Making as little waste as possible
Cellular Mfg (Implementation process)-parts to b md grpd by similarity,prodn flow analy,optimizations performd to minmize costs
Cellular Mfg (Difficulties)-Mc Distances,Bottleneck Mc & Parts,Mc Location,Part Routing,Cell Load Variation,Cell Reconfiguring
Cellular Mfg (Benefits)-Flexibility in operations,changes easy to make,variety of product scaling,minor changes quickly done
Cellular Mfg (limitations)-decrease in production flexibility,difficulty in realignment of cells,changes in flow may be very costly
Six Sigma-quality improvement technique whose objective to eliminate defects in any aspect that affects c'mer satisfaction
Six Sigma focus-C'mer satisfactn; Dcsns based on data-driven facts; Mgt,imprvmnts & processes;Proactive mgt team;Goal for perfection
Six Sigma methods-DMAIC [Define prob/process/c'mer reqmnts,Msr p,Analyse root cause p,Improve (recommend) p,Control(Maintain)]
DMADV[Define project goals/deliverables,Msr c'mer needs & specifications,Analys proces,Dsgn p to meet c'mer needs,Verify dsgn
DMAIC-A product/process exists,ongoing conti impr process,single process to alter,Competitor’s actions stable,C'mer’s behaviour
unchanging, Technology stable. DMADV-product/process not exist,Project hv strategic importance,Multiple process to alter,
Competitor’s performance changing, Customer’s behaviour changing,Technology is growing.
DMAIC and DMADV (Similiarities)-based on DPMO,use same kind of six sigma qlty mgt tools,C'mer’s needs are basic parameter
DMAIC and DMADV (Differences)-Review existin proces/Emphases on dsgn,Reactiv/Proactiv proces,Incr capability/Incr capacity
Six Sigma Quality Mgt Tools-Histogram,Pareto Diagram,Tree Diagram,Control Chart,Process Mapping,Root Cause Analysis
Six Sigma limitations-focus on quality only, NA to intangible results,Substantial infra invt,Complicated,focus on specific type
Lean Six Sigma- Incr speed & effectiveness of any process, Maximize Profits, Build Better Teams, Minimize Costs, Satisfy C'mers
Process Innovation-Implmnttn of a NEW or signif improved prodn or delivery mthd incl chngs in techniques/Equip/software
Process Innovation & BPR-PI attempts to implement new processes into org but BPR focuses on amending existing processes
BPR-funda rethinkin &radicl redsgn of busi proceses to achiv dramtc impr in crtcl contem msrs of perf such as cost,qlty,service&speed
BPR Components-FR(why do we do the way we do it),RR(if we were a brand new business,how wud we operate our co),DI,End to End BP
BPR (Charateristics)-Combining several jobs into 1, permitting workers to mk more decision themselves, defining diff versions of
processes for simple cases vs complex ones, minmiz situations when 1 person check someone else’s work, and reorganizing jobs
BPR Principles-Organize around outcomes & not tasks,Hv those who need results to perform the process,Integrate processing of info,
Treat geographically dispersed resources as centralised, Line parallel activities,Capture info once & at source
BPR Stages-Process Identifn(Each task brkn dwn),Pr Rationaln(NVA discarded),Pr Redsgn(Remainings),Pr Reassembly(Effic implemetn)
Cost Redn/CostCtrl (Diff)-perm redn in unit cost/cmprsn of act wt stds or bdgts,Real savngs/Tmpry,dynmic appr/les dyna,corr msr/prev
Cost Redn/Cost Ctrl (Exs)-CR: Msrs to stdize for incr productivity,Challenges the std set; CC: Prov for proper storage facilities for mat
Cost Reduction (Scope)-Product Design,Organisation,Factory Lay Out Equipment,Production Plan Programme and Method
Cost Reduction (Tools and Techniques)-Value Analysis,Inventory Mgt(JIT etc.),BPR,Target Costing,Kaizen Costing
Target Costing-mgt techniq aimed at reducing a PLC costs. we first determine what price we think the c'mer will pay for our product.
Target Costing (Adv)-Proactive appr,proper planning,empee awareness,partnership with suppliers,Minimize NVA activities
Target Costing (Features)-integral part of design & intro of new products,target SP is market-driven,Establishing Cost Redn Targets,
target SP is estab of target prodn volums, given the rltnshp b/w price & volume;judgmnt needed wr allowable cost & target cost differ
Target Costing (Probs)-Lengthy dev process,Too many opinions regarding dsgn,Costlly, may reduce the qlty of products,Gud TL reqd
Target Costing (Components)-Value Analysis,Value Engineering
Value Analysis-a planned, scientific approach to cost redn which reviews mat composition of a product & prodn dsgn so that modif
& impro cn b md wc do not reduce value of product to c'mer/user.Cost avoidance or cost reduction of a product already in prodn
Value Eng-application of value analysis to new products. It relates closely to target costin as it is cost avoidnc/cost redn b4 prodn
Functional Analysis-applied to dsgn of new prods,brks prod dwn in fnctonl parts,elimin of unneces & add cost-effec new features
VA/VE issues-Can we? -eliminate functns or durability or reliability, minimz design,substitute parts,combine steps,tk supp asstnc
Target Costing & Kaizen Costing-The initial VE may not uncover all possible cost savings.Thus, KC is designed to repeat many
of the VE steps for as long as a product is produced, constantly refining the process and thereby stripping out extra costs
Target Costing (Mgmt Acc role)-cost estimts,capital bdgtng,cost allocatns,trackin gap b/w curr & target cost,Compare act cost to TC
Target Costing (Impact on Profit)-continuing emphasis on product costs throughout the PLC,precise targeting of the correct prices
Target Costing Data Flow-central accounting data base,best possible guesses,best estimate,competitor’s information,
Target Costing (Used by which Cos)-Assembly-ori indus,diversifi product lines,factory automation,shorter product life cycles,JIT,VE
Target Costing (When useful?)-situations wr majrity of prod costs are lockd in durin prod dsgn phase.It's for prod mostly,bt few serv
Target Costing (Control Points)-Identification of Principal CP,Point of Go/No Go Decision,Milestone in terms of Timer or Points
Target Costing (Implementation)-Create a Project Charter,Obtn a Mgt Spnsr,Obtn a Bdgt,Assgn a Strng Team Mgr,Use Prjct mgt tools
PLC-a pattern of exps,sales level,revenue & profit over period frm new idea generation to deletion of product frm product range
PLC phases-Introduction,Growth,Maturity,Saturation and decline
Intro (Charac)-Dcsn abt brand pack label,High dist&promo exp,Low/-ve prft,Low pene/high skim price,Huge effrts to attrct mkting
chanels,Aggr promo effrts to inc awrenes,Prod refinemnt not poss,Few cmpttrs prdce basic versn,Focus on buyrs most ready to buy
Intro(Strateg)-Attractin c'mers by raisin awrns of prod thru promo actvits,Inducin c;mers to try & buy prod,Strngthn/expand channel &
SC rltnshp,Buildin on avlablty & vsblty of prod tht boost channl intermdi to supprt prod,Set price in alignmnt wt cmptve realties of mkt
Growth(Charac)-High vol of busines & Inc in comp,Sales incr at inc rt,News chanels to handl addl vol & new mkts,Shift emphasis frm
prod awrns to prod convicn,overal strtgy fr trade off b/w high prfits & mkt sh,Improv/add featurs or strtgc lowrng price to attarct more
buyers,Same promo spendin/slight higher,Educatin mkt is main goal,length of growth stg varies acc to natur of prod & comptve reactn
Growth (Strateg)-Estblsh a clear brand identity thru promo campaigns,Maintain control over product qlty to assure c'mer satisfac,
Max availability of prod thru strong distr chanel,Find ideal balance b/w price & demand as per price elasticity,Overall strategy shifts
frm acq to retention of c'mers,frm motivatin prod trial to generatin rpt purchases & buildin brand loyalty,Devp of LT rltnshp wt c'mers
& partners for maturity stg,Value-based pricing strtgs may be cnsdrd,Leverage prod’s perceived diffl adv to secure a strng mkt position
Maturity (Charac)-Over capacity in industry,Intensify Cmpttn,Populn growth & replcemnt dd govern future sales,Sm laggard buyers
stil entr mkt,Prft strts to declin,No dist chanels to fill,C'mer strts movin towrd oth prods & subst,Strng mkting challngs,High R&D bdgts
Maturity (Strateg)-Strng mkting effrts needed to win over cmpttr’s c'mers,Prod features may be improved/enhanced to differ prod frm
cmpttrs,Prices may hv to be reduced to attract the price-sensitive c'mers,Various sales promo incentives r necessary for c'mers as well
as dealers to maintain their intt in prod,Distr bcms more intensive & incentives may be offered to encrg prod over competing prods
Decline (Charac)-Sales drop to zero/low level due to tech advncs,c'mers shift in taste etc;Profit strts decling or-ve,No.of Cmpttr drops
Decline (Strateg)-The prod can b maintaind in mkt by diffrntiatn, keeping low cost for sm more time by adding certain new features
& finding new uses;The firm cn continue to offer the prod to its loyal customers at a red price,Firm cn even discontinue product,Use
prod as replacement product for launching another; various mkting decisions will depend on whether it is being revived, or given a
new lease of file, or left unchanged if it is being liquidated,The price may be maintained or reduced drastically if liquidated.
PLC Charac-finite lives,Profit pu varies,Each stage different threats and opp,require diff functional emphasis in each stage
PLC Benefits-earlier actions,Better decisions,promote LT rewarding,provide a LT picture of product line profitability
PLC Uses/Importance-Planning,Control,Forecasting,Appropriate strategy formulation
Life Cycle Costing Features-Tracing of costs and rev,Emphasis is on Cost and rev accumulation,Traces R&D, focus on dev costs
Pareto Analysis-80: 20 rule,80% of the wealth of Milan was owned by 20% of citizens,identify both profitable & unprof targets
Pareto Analysis USE-Prioritize prblms goals, define key qlty impr programs,empee relations impr prog,performance impr prog
Pareto Analysis Applications-Pricing of a Product,Customer Profitability Analysis,Stock Control,ABC,Quality Control
Customer Profitability Analysis (Benefits)-which c'mers are eroding/contr profit,basis fo cnstrctv dialogue bw buyer and seller
Customer profitability analysis (Organizations using) -FIs,Hospitality,Professional services,Hospitals and Healthcare,Logistics
EMA-identifies and estimates costs of envt-related activities and seeks to control these costs for internal decision making
EMA application/benefits-Product Pricing,Budgeting,Investment Appraisal,Calculating Costs,Savings of Environmental Projects
EMA's Role in Decision Making-Diffrnt pricing,Re-evaluation of prft margins,Phasing-out certain products,Re-designin proceses
EMA (Adv & Disadv)-Improving Rev, cost redns… Increases in Costs,cost of failure,Difficult to identify & allocate envtal costs
Environmental costs- incurred because of poor quality controls ex-Waste,Water,Energy,Transport & Travel,Consumables & RM
Environmental costs (types/categories)-Envtal Prevention Costs, Appraisal Costs, Internal Failure Costs,Ext Failure Costs
Envtal Prev Costs-Evaluatin & pickin poll control eq,Creatin envtal policies, R & D Site & feasibility studies,Invt in protective eq
Envtal Appr Costs-Monitr test inspect & report,Imprvd sys & chks to prvnt fines/pnltis,Regu compliances,Contaminatn tests,Audit
Envtal Internal Failure Costs-Recycling scrap,Disposing toxic mat,Back end costs such as decommissioning on project completion
Envtal External Failure Costs-Cleaning up contaminated soil,Restoring land to its natural state
Environmental Costs (Techniques for Identifn & Allocatn)-Input-Output Analysis,Flow Cost Accounting,Life Cycle Costing,ABC
Input-Output Analysis-technique to record mat inflows & balances this wth outflows on basis that,what comes in, must go out
Flow Cost Accounting-Classic material flows are recorded as well as material losses incurred at various stages of production
Life Cycle Costing-considers the costs and revenues of a product over its whole life rather than one accounting period
ABC-distinguishes b/w envt-related costs,wc can be attributed to joint cost centres,& envt driven costs,which is hidden on Gen OHs
Activity & Cost drivers-Planting of trees-No. of trees planted;Solid waste removal-Vol of such waste;R&D activities-Man hours wrkd
Non financial cons-customer and employee satisfaction, innovation and qlty;Worker's health,safe & healthy envt for employees
Safety measures-Safety monitoring sys;Workersr trained;1st aid kit;Protective glass,cloth, gloves;Reg health check-up camps
Environmental Costs (Allocation Keys/Cost drivers)-Vol of emissions/waste,Toxicity of E/W,Envtal impact ,Relative costs
Environmental Costs (Controlling techniques)-Waste (Mass balance approach, separate storage tanks can be created),Water
(rain water harvestin,ultra-filtration,reverse osmosis),Energy (periodic energy audits,LED lights,Solar lights),Transport & Travel (fuel-
efficient vehicles,allocation of c'mer based on nearest location,GPS),Consumables & RM (Use of Recyclable technology,Periodic testing)
Environmental Cost Mgt (Controlling reasons/Benefits)-Msrmnt of Carbon footprint,Recyclin,mng huge envt costs,Regul laws
Energy sources-Thermal Power,electricity, solar power, wind power, nuclear power,coal, natural gas, neptha
Power Sector Risks-Highly Capital Intensive,Deficiency in coal supply,Electricity Distribution – A Complex Network
Power Sector Features-Ltd no.of suppliers,Complex determ of tariff,Flexi Cost allocation,Indisciplined c'mer,Continuous netwrk
Power Sector (Application of Cost Management Techniques)-Detrmnng prices & regulatin tariffs,Developin a flexible cost
allocation,Distribution loss & inefficiency gap analysis, Multi-dimensional costing calculations,Powerful analysis & reporting
Power Sector (Value Chain Analysis)-Generation & trading,Transmission,Distribn & Metering,Storge,Mkting sale & serv,C'mer
Agri sector Features-Frgmntd Structure of Ind,Lack of underst of costs&prices,Ineffective Target cost Mgt,Imbal of power distri
Agri sector Cost management -Activity Based Costing
Agri sector Cost Mgt (Benefits of using ABC)-Adjustable costing technique,Faster and more accurate, detailed cost analysis
Minimum Support Price (MSP)-to protect farmers against sharp dip of agricultural prices to avoids distress selling situations
IT Sector-Expns incurres by MNC,devlp centralized IT departments acting as cost centers,allocation of expns by business units
IT Sector (Features)-Complex operating structure, difficult implementation of cost allocation methods
4D IT Cost Optmiztn Frmewrk-Defin Org Vsion,Doc of the curr state,Delineation of trgt busi architect,Dcison: Build v/s Buy
CVP analysis-relationships b/w revenues,costs,levels of activity & profits.Used for decisions of prodn,pricin,mktin,cost strctr etc
CVP analysis (Types)- Activity Based, Under conditions of uncertainty, in Service & NPOs, in JIT Envt
CVP Analysis (Activity Based)-it separately identifies non-unit based costs to prods rather thn combining in a pool of FCs
CVP's BEP vs ABC's BEP - FCs may vary with non-unit cost drivers say setups & eng hrs; the numerator has 2 non-unit-VC terms
CVP Analysis (Conditions of Uncertainty)-include FC,VC & SP as uncertain variables which lead to an increase in SD i.e risks
CVP Analysis (in Service & NPOs)-Measuring the O/P,wc is diff from tangible units sold by mfring & merchandising Cos
CVP Analysis in JIT Envt-VC pu reduced & FC incr,DL is fixed,DM vary,Waste/qty discounts r removed,batch-level variable is absent
CVP Analysis in JIT Envt Total cost= FC+Unit VC x No. of units)+(Eng cost x No. of Eng hrs)
Short run decisions-act of choosing one course of action among various feasible alternatives available as wthr to make a prod/
outsource,wthr to accept a spl order, wthr to keep/drop an unprofitable segment, wthr to sell a product as is or process it further.
Short run decisions (Features)-Based on Relev costs;Refrrd to as tactical dcsns;Choosing amng alternatives;Serves larger purpose
Short run decisions (Limitations) - FC may change in LT; ST net cash inflows; fixed costs of handling increase; Capacity issue;
Strategic decisions- r LT in nature coz they involve choosing b/w diff strategies tht attempt to provide a comp adv over a LT frame
Tactical decision making - Define problem;Identify alternatives;Eliminate unfeasible alt;Identify costs & benef of each alt; Examine
total relev costs, benef of each alt; Assess non-financial factors & ethical issues; Select alternative with greatest overall benefit
Relevant costs - A future cost i.e.related to future; A differential Cost i.e. its level must be diff for each of alternatives under cons
Relevant costs-Profit reporting, Pricing of future work, effect on other customers loyalty if they know that a lower price was offered
Non-Financial Considerations - Qlty/Empee & Custmr Satisfactn/CSR/Envtal Factors/IPR/Intang Assts/Cmpttr’s Movmnts/Brand Name
Non-Financial Considerations (Limitation) -Time & Cost involved; Subjective msrmnt; Possible chances of error; Mgt Disintegration
Issues in financial study(i.e Non fin issues)-Pymt to Labour & Ethics;Avlblty of land & bribery;Chemical waste & technology
Ethical Conduct(Guidelines)-Identify an ethical dcsn; Identify consequences; Consider obligations & responsibilities; Make a dcsn
Incremental/Differential Cost Application-Wthr to process a prod,Drop/add a prod line,Make/buy,Lease/buy,Equip replacmnt dcsns
Cost Plus Pricing (Disadv)-ignores dd,Fails to reflect comptitn,costs mayb arbitrarily allocated,Fixed OHs depends on vol
Pricing under Different Market Structures-Perfect Competition,Monopoly,Monopolistic Competition,Oligopoly
Perfect Competition & Pricing- large no. of sellers selling a homo prod; Prevailing mkt price; continue to produce till MC </= SP
Monopoly & Pricing-1 supplier/producer of a homo prod; no close substitute but many buyers; price where dd & profit will be max
Monopolistic Competition & Pricing-large no. of firms producing similar but not identical products; Price where MR = MC
Oligopoly & Pricing-few firms produce/sell homo/identical product; close analysis of each other’s behavior by cooperation & collusion
Oligopolies (Pricing Strategies)-Predatory Pricing,Lmt-Price Strategy,Collusion with rivals,Cost-Plus Pricing,Non-Price Strat
Predatory Pricing (loss leading)-practice of selling a product or service at a very low price, intending to drive competitors out
Oligopolies (Non-Price Strategies)-impr qlty & After Sales Service,Advertise,Sponsorship,Product Placement,Loyalty Schemes
Pricing policy/Mkt power (determinants)-Cost,consumer demand and competitive environment
Pricing policy (features)-Improvd tech & max prodn; bal b/w dd & supply; Avoid advrs effcts on economy; optimum util of res;
Product Pricing (Principles)-Price Customization; Price Sensitivity
Price Customization-(Based on) - product line; customer’s past behaviour; demographics; time differential
Price sensitivity (Factors)-Unique Value Effect,Substitute Awareness E,Difficult Comparison E,Total Expenditure E,End- Benefit E
Price sensitivity (Controlled Experimentation method)-C'mers r offered diff brands at diff prices & responses r obtained
Pricing Methods-Cost-Based; Competition-Based [Going Rate,Sealed Bid]; Value Based [TEV,Perceived value]
Cost-Based Pricing Method (Limitations)-allocatn of inter-deptal OHs is arbitrary; OH allocation basd on estimatn of O/P
Marketing strategies for creating value for c'mers-dvlp a prod tht satisfy wants and needs of c'mers; designs a promotion
program to convey the value; choose right distribution channel; design a pricing strategy
Recession (Pricing & Adv)- price<TC but>MC; Prodn & Empees continued; No deterioration of P&M; Ready for impr conditions;
Below MC Price (Situations)- Mat of perishable nature; Stks accumulated in large qty & MP falls; To popularize a new prod;
New Product Strategic pricing-experimental sales are conducted in different markets using different prices to see which price is suitable.
New Product Strategic pricing (Categories) -Revolutionary Prod,Evolutionary Prod,Me-too Prod,Skimming Pricing, Penetration Pricing
Revolutionary Prod- new for mkt & hs potential to create its own value; Enjoy premium price for its innovation & taking first initiative
Evolutionary Prod- upgraded version with few addl charac; priced taking cost-benefit,competitor & demand; Demand Based Pricing
Me-too Prod- its emerges due to success of a revolutionary prod; Very similar to revolutnry/evolutnry prods of other firms; Mkt Price
Skimming Pricing- high prices during early period synchronised with high promotional exp & in later yrs prices can be gradually reduced.
Skimming Pricing (Reasons)-Inelastic demand,Sales Boost when price red later,Assured profit, to cover initial COP & High Promo Exps
Skimming Pricing (PLC)- IS:high prices; GS:Reduce price to penetrate mkt; MS:Price to match/beat cmpttr; DS:Cut price if nt repositioning
Skimming Pricing Growth Stage (Reasons)- SP reduced: become less unique; to discourage competitors; to attract diff mkt segs;
Prodn costs reduced: DM bought in large qty; learning & experience curves; larger batch sizes; FCs shared by a greater number of units
Skimming Pricing Growth Stage (Strategies)-Imprv qlty & add new features; New mkt segs/distr chanls; Chng mkting strtgy; Lowr price
Skimming Pricing Maturity Stage (Reasons)- Effects on SP: Fairly constant SP; Effects on Prodn cost: MC fairly constant & may even
rise; DL cost unlikely to reduce as learning & exp curves have ended; OH costs similar to growth stage as optimum batch sizes established
Penetrating Pricing-a pricing suitable for penetrating mass market as quickly as possible through lower price offers.
Penetration Pricing (Reasons)-Demand Elastic to price,Mass Prodn, for entry barrier to prospective competitors, for LT survival & profit
Penetration Pricing (PLC)- IS:Gain a high share/prvnt cmpttrs from entering; MS:Retain highr prics in sm mkt;DS:Sm incr in prices may occur
Price Adjustment Policies-Distributor’s Discounts,Quantity discounts,Cash discounts,Price Dscrmntn,Geographic Pricing
Price Discrimination-charging different prices with respect to customers, products, places and time
Price Discri circumstances-mkt capa of being segmented,c'mer nt resel prod at high price,competitors’ underselling nt posble
Differential selling prices (2Ways)- dumping of branded products in another market above MC; OR produce and sell a branded article
which covers the entire fixed overheads and use the surplus capacity to produce another product B, which may be sold at a price above its MC;
Structured approach to Pricing decisions- Cos/Mkting objectives; Set pricing objs & policy; Assess target mkts; Assess Competitors;
Assess c'mers dd; Assess costs structure; Select pricing method; Select specific pricing;
Sensitivity analysis in Pricing decisions- striking right balance in which price is good to generate enough sales, yet is also profitable
Sensitivity analysis (Factors considered)-Ext: Mkt dd,MP; ER fluc; Int:Initial Outlay,R&D,Mkting cost,Prodn cost,Intro dt,Prod prices;
Pricing of Services (Issues)- distinct pricing structure,intangible costs,Govt regulated prices,Trade assn regulated prices
Responsibility Centres/Decentralization levels-Cost/Expense Centres,Revenue Centres,Profit Centres,Investment Centres
Responsibility Accounting-reporting of FI wer Ind'l mgr is accountable for certain costs, revenue, or assets of the firm.
Organizational Structure categories for performance appraisal - Functional org structures. ▪ Divisionalised org structures
Functional Org Structure-prod mix & O/P dcsns will be md by central mgt. Fnctnl mgrs have far less independence thn divisional mgrs
Divisional Org Structure-Geogra areas;Mkts;Prods & srvcs.Divisn heads set SP, choose mkt to sell,mk prod mix & O/P dcsns,Slct suppliers
Divisional Performance Measures (Features) -mgrs dcsns in best intts of overall Co. (goal congruence);Mgrs held accountable.
Pure Financial Msrs-ROI,RI,EVA,SVA; Fin & Non Fin msrs: Bal scorecard,Perf Pyramid,Building blk mdl,Perf prism; Social/Envtal: TBL
Common b/w BS/PP/BB- Performance msrs : allied to corp strat; incl int &ext msrs; incl fin & non fin msrs; msrs for mgrs/emp’s motivatn
EVA vs Profit based Measure - Profit ignores cost of equity capital; Profits calculated in acc with ASs do not truly reflect the wealth;
SVA-evaluating options for improv SH value; Value drivers: Rt of Sales Growth;OP Margin;IT Rt;Invt in WC;Fxd Cap Invt;COC;Life of Proj
Financial Msrs(Adv)-Focus on fin objs & wealth creatn;Such msrs are obj;Quantificatn of results is possbl;Msrs r cmparable within industry
Financial Msrs(Disadv)-Focus on ST profits;This measure can be distorted by inflation;Fin info might be manipulated to show a better perf
Non-Financial Performance Msrs-Qlty,Reliability,Flexibility etc. also to be msrd to access success of any org apart from costs, rev & profits.
Non-fin Performance Measures (Adv)-msrs every area wthr fin or non-fin;focus on qualitatv aspects as well;These msrs take a LT view
Non-fin Performance Measures (Disadv)-time consuming,unlike acc msurs,msurd in many ways,no common denominator
Triple Bottom Line (Dimensions)-Social bottom line,Economic bottom line,Environmental bottom line; rather than simply financial perf
TBL & Traditional a/c frmwrk(Diff)-TAF focuses on the profit of SHs and TBL on social,envtal and economic implications of its operations;
TAF uses reporting currency as the unit of msrmnt, but TBL has no uniform std or msr therefore its materiality, could either be fin/non-fin
CSFs- what co. needs to do to achieve its goals Considerations: Industry Structure,Competitive Strtgy,Envtal Factors,Tmprry Influences
KPIs-Consequence of CSFs as to how to achieve CSFs; A single CSF can also have >1 KPI;The KPI targets are more formally called thresholds
CSF & It's KPI-Be the Most Profitable Co.-Profitability ratios;TQM-No of defect produced;Upto Date Technology used-Amt spent in R&D
Balanced Scorecard - a set of financial and non-financial measures relating to a company’s CSFs.Considers intt of SHs,C'mers & Empees.
Balanced Scorecard (components/Performance measures perspectives)-financial perspective,customer p, IB p, L&G p
Balanced SC (Process)-Id Vision,Id Strat,Identify CSFs and Persp,Identify Measures,Evaluate,Create Action Plan, Folow up & Mng
Balanced SC (Fail Reasons)- Mgrs think they already use non-fin msrs;Deleg resp to middle lvl mgrs; copy msrs & strats of other co.
Balanced SC Strategy Mapping- shows the objectives needed to execute the strategy. Created for NPO and profit enterprises
Balanced SC Strategy Mapping (Exs)- FP: Maximise Org's Value; Revenue growth strategy; Productivity strat; Asset utilization
CP: Add/Retain high value c'mers; Incr revenue per c'mer; Reduce cost per cmer; IP: C'mer mgt rltnshp; Innovation & commercialisation
supremacy; Int operations excellence; Eff governance & ctrl; Perception-public rltns; L&G: Staff competencies; tech infra; Org's capital
Balanced SC (Obj & Msrs for Banks)- IB: Cross-sell Products-Products Purchased per c'mer; L&G: Incr no. of New Prods/Services
Sold-No. of c'mers buying new prods/srvcs; CP:Increase Customer Loyalty-Number of Accounts Closed or Closure Request Received
Performance Pyramid- it links the business strategy with day-to-day operations, Strategic Mesrmnt & Reporting Technique
PP (Objectives)- LT success & compet adv; achieve org’s CSF i.e mkt & fin msrs; C'mers satisfaction, Incr in flexibility & high productivity
PP Ext Effectiveness (Non fin)-Mkt,C'mer satisf,Qlty,Delivery; Int Efficiency (fin forces)-Financial,Productivity,Cycle time,Waste
External Effectiveness (Quantitative measures)-achiving dsgn qlty stds,retrns from c'mers,aftr-sales serv cost,Deliv effici impr
Internal Efficiency (Quantitative measures)-avg tot cycle time from c'mer enquiry to deliv,Waste in idle mc,compo prodn scrap
Performance Pyramid (Benefits)-Devlps agrd msres of activity;Clarify obj of org;Cmpar b/w divisns,Promts accountability to stakhldrs
Performance Pyramid (Probs)-undue focus on msrmnts,focus on 1 msrmnt,focus on ST msurs,Misintrprtatn of Data,Rprsnt outdtd data
Performance Prism-Unlike Bal Scrcrd's SHs & c'mers, a perf mgt wc aims to effectively meet needs & requirements of all stakeholders
Performance Prism Steps/5 Facets-Stakeholders Satisfaction,Strategies,Processes,Capabilities,Stakeholders Contributions
Performance Prism Features-Starts with stakeholders rather than strategies,recog stakehldr satisf is key to org success
Performance Prism Benefits-develop strategies,all imp stakehldr grps,address the risks and opp,comm & imple of strategy
BB model (3Qs)-Wt dimnsns of perf shud co msr?Hw to set stds for thse msrs?Wt rwrds needd to motivate empees to achieve stds?
Building Block model-Dimensions (Goals): Results (financial performance and competitive performance) and determinants (qlty,
flexibility,innovation, resoure utilization), Stds:Ownership,Achievability,Equity Rewards:Motivation,Clarity,Controllability
BB (Measures)- Results-Competitiveness: Rel Mkt Share,Sales Growth,C'mer Base; FP: Profitability,Liquidity,Cap Structure,Mkt ratios;
BB (Measures)- Determinants-Q:Reliability,Aesthetics; F: Vol,Delivery Speed,Specification; RU:Productivity,Efficiency; I:Process Inn
Building Block model (Adv)-All key determinants of success are msurd,Targets are set such that staff r engaged & motivated
Benchmarking- technique for continuous improvement in performance. Cmprs firm’s prods,srvcs/activities agnst other bst performin orgs
Benchmarking (Types)-Competitive B,Strategic,Global,Process,Functional,Internal,External; Categories: Intra-Group B,Inter-Industry B
Benchmarking (Goals)-Perfo impr &returns bsd on efficiency;Cost savings &new rev;C'mer orientd &results focusd;Cycle tims;Productivity
BM (Process/Stages)-Planning: Determ BM goal stmt; Identify of best perf; Establish BM/process impr team; Define relevant BM msrmnt;
Collection of Data & Info: thru national/int'l clearing houses,mail surveys,suppliers,company visits,telephone,interviews etc. Analysing the
Findings: Review findings & produce tables,charts & graphs to support the analysis; Identify gaps in perf b/w our org & better performers
Recommendations: Deciding feasibility of making improvements; Developing action plan(s) for implementation; Monitoring & Reviewing
Benchmarking (Pre-requisites)-Senior mgt supprt;Clearly defind obj;Appr scope of wrk;Avail of suff resources;Right skills &cmptncies;
Benchmarking (C'mer Satisfaction)-Consistency of product/service; Process cycle time; Delivery perf; Responsiveness to c'mer req;
Benchmarking (Bottomline)-Waste and reject levels; Inventory levels; Work-in-Progress; Cost of sales; Sales per employee
Benchmarking (Difficulties in Implementation)-tme cons,req direct invlvmnt of snior mgr,resstnce frm empees,Cos waste time
Benchmarking (Code of Conduct)-Principle of Legality,Exchng,Confdntlty,Use,First Prty Contact,Third Party Contact,Preparation
NPO (Perfo msrs) - VFM; Adapted Balanced SC; to give a confidence to donors that resources contributed are being utilised effic & effec
NPO challengs for measuring perfo-Bnfts cant be quntfd,Bnfts accrue over LT,Msurmnt of utilisation of funds & exp,Mltple objectives
VFM Framework (NPO)- Effectiveness(mission & obj), Efficiency(resources & funds gvs max o/p), Economy(desired output at low cost)
Economy(Guidelines)-Bifurcate cleaning exps into contrctr pymt,emptying waste from bins,lab,disposl van etc thn cmpr to bdgts apprvd
Efficiency(Guidelines)-Chk log rcrds mntnd by cntrctr &municiplty wrkrs;Cost drivrs cn b identifd & certain metrics can b dvlpd fr anlysis
Effectiveness(Guidelines)-clear guidelines &metrics hv to b dfind durin policy implmntn;B clear as to wt constituts litter;Dfine safety stds
EEE(Gen guidelines)-Q is Has obj of cleaning achvd effectively? If YES- then ops r economical & efficient.If NO-operatn hs nt been effective
NPO Adapted Balanced Scorecard-C'mer perspective(Beneficiery & stakehldrs); Fin p(Fund raisin &dist); IP p(Efficiency & qlty); I&L p
Challenges Involved in assessment of effectiveness-Defining stds wt constitutes litter & aceptbl lvl of clnlnss,Beach patrons
Transfer Pricing: Valuation of inter-divisional tfr of G/S in mgt accounting system; involves payments for intangibles;
Transfer Pricing (Utility/Uses)-Perf Eval,Empee enggmnt & compensation,Resource allocation,Taxation & profit remittance
TP (Mkt Based): Ext MP,adjstd fr any costs tht cn b savd by int tfr eg. S&D,packagin; Adv:Unbiased,less-ambiguous,more obj dvsnl perf;
Disadv: Fluctuating mkt prices,manipulative pricing strat; Beh Conseq: SD will have to compete with o/s vendor; PD has more alternatives;
TP Shared Profit relative to Cost Mthd:Cost incurrd by each div used to get SP.Adv:allcats profit bsd on prop of value addn to prod wrt cost
TP (Cost Bsd): bsd on int cost records;Adv:BM to bdgt,easy availbl info; Disadv:Multipl ways of intrprting costs,find littl incntiv to lower COP
TP (VC):MC reqd to prod 1 addl unit.Adv:used wn SD hs exces capa;PD enjoys lwr price cmprd to mkt;Disadv: No FC/markup is chrgd to PD
Beh Conseq: Profit eval is centralized, D may hv little incentive to find msrs for mking cost efficient.Non-recovery of FCs wud de-motivate SD.
TP (Std cost): at predeterm cost based on budgets;Adv:Perf eval agnst bdgtd costs,variance analysis;Disadv:Prft perf msrmnt is centralizd
Beh Conseq: Budgeted costs r generally based on historic records. hence, little incentive exists to mk costs more efficient to improve profit
TP (Negotiation Based): Mgrs of PD & SD negotiate & arrive at a agreeable TP; Adv:Autonomy to decide wthr to purch (or sell) frm its
sister unit or source then from (or to) ext mkt;Disadv:Req suff info of MP; Int cost info mst b shrd to negotiate;BC:promotes goal congruence
TP (Full Cost Bsd):on full prod cost;incl COP+a share of othr costs of value chn; Adv:SD wil nt shw a loss;Disadv:SD doesnt rcrd any prft
TP (Full Cost+Markup Bsd):Markup cud b a % of cost/CE;Adv:Full incntv to SD;Disadv:Sellin exps by PD;BC:distorts Co's cost structure
TP Divisional Conflict: Dual Pricing-SD records TP by incl a nrml prft mrgn shwing rsnable rev.PD records TP at MC i.e recording purch
at min cost; Adv:better eval of each div’s perf, improves co-op bw divs;Disadv:Complict rcrds, artificial profits can e used only for int evals
TP Divisional Conflict: Two Part Pricing-resolving probs rltd to distortions caused by the full cost based TP; TP = MCOP+a lumpsum
TP (Int'l)-to reflect higher earnings in PD with lower tax rt country,,TP is set lower by SD is in a country with high tax rate, & vice cersa
TP (Int'l & Curr mgt)-MNC to set TP in a curr such tht any curr loss arise in subsy in high-tax cntry,& curr prfts arise in cntry wt lwr tax rt
Strategic Profitability Analysis-Operating Profit is affected by various components which are responsible for changes in rev and costs
Strategic Profitability Analysis (Components)-Growth Component;Price Recovery Component;Productivity Component
Profitability Analysis Through ABC-aid to Mgt evaluation & dcsn mking; helps to identify costs; provide more useful info to mgt
Direct Product Profitability (DPP)-used in retail sector,Involves purchase price & other indirect costs to each product line to get NP
DPP (Benefits) – Cost analysis, pricing decisions, management of stores and warehouse space, rationalization of product ranges
ABC in Adv Manufacturing Envt-wr support function OHs constitute a large share of TC,ABC provides more realistic & acc prod costing
Manufacturing operations, Ways time is spent-Process Time,Inspection,Move,Waiting,Storage,Deliv Cycle,Manufac cycle
ABM-focus on mgt of actvts to improv value recd by c'mer &prfit achvd by providin this value.Incl CD analysis,actvty analysis & perf msrmnt
ABM Business Applications-Cost Reduction,ABB,BPR,Benchmarking,Performance Measurement
Quality(Performance msrs)- Qlty of Purchsd Componnt:Zero Defects; Qlty of O/p:% Yield; C'mer Awareness:Orders,No. of Complaints
ABM Implmnttn-decide Issue & info reqd,Tk Top mgt suprt for info,Incorp ABC in FR process,If ABC nt posibl-dvlp sep ABC systm
ABM Benefits-Cost redn,ABB,Undrlying causes of busi procesing costs,Effctvnes of mgt dcsn mking,Idntificatn of key proces waste elemnts
ABM (Operational)-doing things right’,using ABC info to impr efficiency.Covers lwr cost & lead to highr rev thru bettr resourcs utilisatn
ABM (Strategic)- ‘doing the right things’. It uses ABC info to determine which products is to be mfrd and which activities is to be used.
ABM (Risks)-sm activities hv an implicit value are nt reflected in a financial "Value added" to any product. Ex- a good & working envt
ABM and ABC Diff-ABM- planning,execution,msurmnt of activities as key to compet adv, ABC : logical distribution of OH on consumptn
ABB-proces of plnnin & ctrlling expctd activities for org to deriv a cost-effctv bdgt that meets forcast wrklod & agrd strtgic goals.
ABB Key Elements-Type of work/activity to be performed,Quantity of work to be performed,Cost of wrk to b performd.
ABB and ABC Diff-ABB analyzes G/S to produce,Actvties reqd to produce G/S,Resourcs needed for actvites.ABB is reversing of ABC process
ABB Benefits-Better budget for diff unit sales levels; Better identificatn of resource needs;Clearer linking of costs with staff responsibilities;
Kaizen Budgeting Adv-indicates mgt's commitmnt to organizd cost redn;show unfav var; Disadv-considers minor incremental imprvmnts
Budgetary Control-Systematic ctrl of an org's operations thur estab of stds & targets regard incm & exp & a cont monitoring & adj of perf
Budgetary control (Charac/Pre-requisites)-clrty of mgrial respnsblty,achivble busi targets,estab of data collctn,ST periods
Budgetary Control (Problems)-Lack of Coordinated Goals; Influences of Uncontrollable Factors; The Short-Run Perspectives:
Budgetary Control (Ways to improve)-Dfine Co’s obj clearly; Dvlp an acountin rportin sys; Estblsh bdgt values for apprpriat time periods
Budgetary Control (Behavioural aspects)-Conflicts arise due to human nature of a BC sys; Mgrs do nt think LT & moving away from plan;
Feedback Control (Corrective measure)-Msrmnt of diff b/w planned O/p & actual O/p achieved & modify actions/plan to achive results
Feed-forward Control (Preventive measure)-forcastin of diff b/w actual & plannd outcoms & implmnttn of actions b4 evnt,to avoid diff
Feedback (Types)-Primary (ctrl rprts fr line mgt);Secndry-(for highr mgt review);-ve-to rvrse deviatn frm std;+ve-to reinforc dviatn frm std
Feedback mgt control reports(Guidelines): Report shud disclose-acmplshmnt & rspnsblty; variations frm stds; trends & rltnshps;
Preventive mgt Control (Implementation approaches)-Contingency Plans; Trend Analysis; Adaptive Mechanisms; Policy Directives
Feedback Control (Limitations)-depends heavily on success of error detectn system; time lag b/w the error detectn,confirmatn,& revsn
Feed-fwd control (Implementatn Guidelines)-Thorough plannin & analysis reqd; Keep dynamic sys; Dvlp model of ctrl sys; Action reqd
Feed-fwd Control (Limitations)-concerned with the estimates of uncertain future; Study of future is not well developed
Bdgt Slack/Slack Target-Allowing mgrs to set their own targets will introduce slack trgts. Mgrs to meet bdgt trgt introduce slack into bdgt
Effect of Budget Difficulty on Perfor-No motivatn; Negative attitudes; good upward comm reqd; Mgrs reactions affctd by Org's norms
Budgeting (Approaches)-Top down approach (i.e imposed style apprch) and Bottom up approach (i.e Participative apprch)
Top down approach (Benefits)-producd quickly & involve les mgt time; Risks-inaccu bdgts set-not acceptable to subordinate mgrs
Top down budget "Circumstances preferred"-Persnlty traits lmting partcptn,lk of mgrial motvtn,hghly prgrmbl proces,hmgenus units
Bottom up approach-subordinate mgrs to participate in preparation of their own budgets & these budgets to be reviewed by senior mgt
Bottom up approach (Benefits)-Bcms a prsnl goals for mgrs; Greatr goal congrunce; ind'ls knwldg of local cndtns enhancs plannin proces
Bottom up approach (Limitations)-time-intensive;Very costly;To achieve personal goals may engage in politics tht creat budgetary slack
Factors influencing the effectiveness of "Participation":Persnlity,Wrk Situation,Locus of Ctrl,Job Difficulty,Types of Org Str
Styles of using budget & actual cost info in Performance Eval-Budget Constrained Style,Profit Conscious Style,Non-Accounting Style
Traditional Budgets (Limitations)-time consuming,costly,constrain responsiveness & flexibility,barrier to changes,no focus on strategies
Beyond Budgeting (Growth based target instd of Budget based)-Used coz inhrnt flaws in bdgting specially to set contracts
Beyond Budgeting (Adv)-adaptive proces,decntralisd proces,Internal rivalry bw mgrs is reducd,defining clear resp,c'mer-orientd teams
Beyond Budgeting (Charac)-better evaluatn,focus on improvin future rslts,encourgs cultur for innovatn,More timely allocatn of resorcs
Beyond Budgeting (Suitability)-Rapidly changing business targets,organisation using TQM,organisations under BPR
Beyond Budgeting (Principles)-Process [Goals,Rewards,Plannin,Ctrls],Leadership [C'mer,Accountability,Prfrmnc,Frdm to Act,Info]
Beyond Budgeting (Implementatn)-Define Case,Convince Board,Get Startd,Dsgn & Implement New Processes.Train & Educate ppl
Traditional vs BB mgt model (Diff)-Fxd incntvs/Relatv targts &rewrds;Fxd annual plans/Conti plannin;Preallocatd rsrcs/Resourcs on dd
EVA-a link bw dcsns,perf msrs & rewards,wc focuses mgrs on performing better.Qlty info for mking dcsns to maximise SH's wealth
Optimum product mix Q- (i) X 4250 units, Y 4250 units (ii) 6800 units, Y (8089 units this shud produce)
y=axb : y=Avg time/batch (hours) for x batches, a=Time reqd for 1st batch (hours), x=Cum no. of batches produced, b = L coeff
Sales Vol Contn(Planning Var)@=Bdgtd Mkt Share % × [Actual Industry Sales Qty(-)Budgeted Industry Sales Qty]×(Avg Bdgtd Contr pu)
Sales Vol Contn(Operational Var)@=[Actual Mkt Share %(-)Budgeted Mkt Share %]×(Actual Industry Sales Qty)×(Avg Budgeted Contr pu)
Sales Price Var@=Actual Sales Qty × (AP – SP);VC Var=Standard Cost for Actual Prodn – Actual Cost; FC Var=Budgeted FC – Actual FC
Sales Mix Variance=(Act sales Qty-Act sales Qty at Budgeted prop) x Budgeted Cn [for all products dseperately]
Sales Qty Variance=(Budgeted Sales Qty - Act sales Qty at Budgeted prop) x Budgeted Cn [for all products dseperately]
Sales Margin Mix Variance=(Act sales Qty-Act sales Qty at Standard prop) x Budgeted Cn [for all products dseperately]
Sales Margin Volume Variance=(Act Sales Qty - Std Qty) x Budgeted Cn [for all products dseperately]
WH/Ret Costs per m3=Cost per m3 pm xNo.of mnths; Cost per m3 pm=[Gen Cost/Vol of All G Sold pm]+[Refrig Cost/Vol of Refrig G Sold pm]
Transport Costs per m3=Cost per m3 per trip; Gen Van=Cost per trip/Carry Vol of each van; Refrig Van=Cost per trip/Carry Vol of each van
No. of Items per m3=No. of Cartons (m3) x No. of Items per Cartons (units)
INTERPRETATION OF VARIANCES
Planning var-compares a revised std to original std & is considered as not to be controllable by mgt
Operational Var-compares actual results against revised amt. Var caused by chng in SP & market shares would be within control of sales mgr
MPV:Use of diff supplier;Order size;incr/decr in buying costs;Efficiency/ineffi associatd with buying procedure;Lack of appr inventory ctrl
MUV:PurcH of inferior qlty mat;Impl of better qlty ctrl;Changes md in mat mix;Careless handling of mat by prodn dept;Pilferage;Poor Inspectn
LRV:Adverse Indicates that LR/hr paid is > set std; Reason-While setting std,current/future mkt cndns like pendin labour negotiatn/cases,has nt
been considerd correctly;Unexpected incr in the pay rt of labour;Level of experience of labour;Pymt of bonuses;Chng in composition of workforce
LEV:Favourable indicates that wrkrs hv produced actual prodn qty in<time allowed; Reasons-While setting std,workers effic could not be estmtd
properly;Imprvmnt in wrk effic;Wrkforce mix;Industrial action wrt wrkforce;Poor suprvsn;Learning curve effct;inferior qlty mat;stretching rsrcs
OHV:FOHV(A)-spending>budget;FOHVV-chngs in prodn volume;VOH Exp Var-chngs in m/c runnin costs;VOH Eff Var-Similr causes as DL Eff Var
SPV:Higher discounts given to customers;Effect of low price offers;Poor performance by sales personnel;Mkt conditions or economic conditions
SVV:Succsful/unsucc dirct selling effrts or mkting effrts;Chngs in c'mer prfrncs;Fail to satsfy dd due to prodn difcultis;DD chng due to price chng
CSFs- Qlty is Primary; price,delivery options,attractive packing is scndry; Others-Installatns Qlty;C'mer Satisfn;Brand Perf;Manufacturin Excllnc
Q of Std costing "Recon b/w Bdgtd & Actual Prft" bsd on Conv mthd & RC mthd wr Mat & Lab rstrictd to 20K-kg & 16K hrs & No scarce mthd
Recon format for conv & RCM same: Bdgtd Profit-SVV(A)-MUV(A)-LEV(A)-VOHEV(A)-FOHVV(A)=Actual profit; Conv method: 112K-11.2K-8K-
3.2K-1.2K-4.8K=83.6K; RCM(Scarce Labour)-112K-0-24K-3.2K-1.2K-0=83.6K; RCM(Scarce Labour)-112K-12K-8K-7.2K-1.2K-0=83.6K;
RCM(No scarce)-112K-16K-8K-3.2K-1.2K-0=83.6K; Comment-GP margin is jt resp of sales mgrs & prodn mgrs. SM is resp for sales & PM is for COGS.
Top mgt is to ensur tht trgt prft is achvd.SM is nt resp for Cn lost for ineff usag of rsrcs in case of scarce rsrcs.Such Cn lost must b excldd frm SCVV
CASE STUDY
Q:DISCUSS the issues with perf measure in force in Co. A: Co has adopted variance analysis as a measure of performance which cons only fin.
Q:ADVISE an alternate performance measure and Identify Key Performance Indicators- A: Balance Scorecard
Q:EXPLAIN other form of Value Chain Analysis that may be more suitable. A: Value shop model
Q:EVALUATE the strategy adopted by Wings International in becoming a “ no frills” airline; A: Low cost strategy
Q: IDENTIFY the strategy adopted by Wings International for the proposed project; A: Price differentiation strategy
Q:A control reporting mechanism that can enable to tk preventive msrs to avoid errors in its strategy; A: Feed forward control
Q:A control reporting mechanim tht cn enabl to correct its errors & mk changes in its operatns in a more timely manner.A:-Feedback ctrl
Q:ADVISE chngs it could implement in its standard costing & reporting system to achieve improved ctrl; A:labour rates and material yield
Q:ASSESS whether WDG should join the Paper Tubes market as a performance improvement strategy? A-Porter’s ‘five forces model
Q:Advice,if the company wants to achieve zero defect through a continuous quality improvement programme; A-elimination of all forms of
waste, including reworks, yield losses, unproductive time, over-design, inventory, idle facilities, safety accidents, etc
Q:SUGGEST a suitable quality control level at a minimum cost; A:costs of conformance must be high;cost of non-conformance should be nil;
There should therefore be an acceptable level of defects at which the total costs of quality are at a minimum
r chngd into o/p

C to creat new VC
E-Prchsin,E-Pymt)

unprofitable segs

k supp’s assistnc?

Qty loss)/Qty prodd.

roach of each is diff.
price is suitable.

rtgy; Lowr price

prices may occur

price above its MC;

emp’s motivatn

within industry
ow a better perf
osts, rev & profits.

of its operations;

ms;Productivity
nt BM msrmnt;

t been effective
to prod wrt cost
tiv to lower COP

de-motivate SD.

goal congruence

of ABC process
responsibilities;

iat time periods

away from plan;

vnt,to avoid diff

dgeted Contr pu)

f Refrig G Sold pm]

Vol of each van

ntrol of sales mgr

age;Poor Inspectn
otiatn/cases,has nt
position of workforce
ould not be estmtd
at;stretching rsrcs
auses as DL Eff Var
conomic conditions
g due to price chng
nufacturin Excllnc
& No scarce mthd
112K-11.2K-8K-

sales & PM is for COGS.

st b excldd frm SCVV

which cons only fin.

A:-Feedback ctrl
nd material yield

n of all forms of

ance should be nil;

EVA = NOPAT - (Invested Capital x WACC %) Note : Invested capital = Opening Capital Employed only, and not the
NOPAT [if Interest is there]=
EBIT
(-) Interest (If any)
EBT
(-) Tax at given rate
EAT
+ Interest (Net of tax) [If any was there)
NOPAT
NOPAT [if Interest is NOT there]= EBIT [1-t]
Invested Capital = Sh. Cap + R&S + LTF
Cost of Equity considers Sh. Cap + R&S
Cost of Debt considers LTF and not Temporary loans

ROCE = Current year Operating Profit / Opening Capital Employed

Adapted Balanced Scorecard (alternative performance measure which includes non-financial measures)
for measuring performance at NGOs
The following four perspectives are suggested in the adapted balanced scorecard
(i) The financial perspective
(ii) The customer perspective
(iii) The internal processes perspective
(iv) The innovation and learning perspective

See Q d Pg 5.273 Scanner, Qb in pg 5.274, Qb in pg 5.278

Employed only, and not the closing capital employed
Range of transfer price that promotes goal congruence:
Minimum Transfer Price (determined by the supplying division)
Marginal Cost p.u. + Any Additional Incidental Costs p.u. incurred by the supplying division e.g. storage, transportation etc
Opportunity Cost per unit = External Sale Price – Marginal Cost

Maximum Transfer Price (determined by the purchasing division)

Lower of Marginal Revenue (i.e. Selling Price p.u.) – Marginal Cost incurred by Purchasing Division
OR
External Buy-in Price

To overcome the optimum decision making and performance evaluation conflicts that can occur with marginal cost-base
Dual Rate TP System
Two Part TP System
storage, transportation etc. (if any) + Opportunity Cost per unit (if any)

ed by Purchasing Division alone

ur with marginal cost-based transfer pricing following methods has been proposed:
Manufacturing cycle efficiency = Processing (VA) time/Total times VA+NVA
Manufacturing cycle Time = Total times VA+NVA/Units
see pg 5.279 - one Q is relevant in scanner
Planning & Operational Variances
Planning Variance simply compares a revised standard to the original standard.
Operational Variance simply compares the actual results against the revised amount

Usage Var
Price Var

Mat Usage Variance

Mat Price Variance

Lab Usage Variance

Lab Price Variance

Efficiency/Usage Variance
Expenditure/Price/Rate Variance

Statement of Reconciliation - Budgeted Vs Actual Profit (Marginal costing approach)

Budgeted Profit
Less: Adverse variances
Sales Volume Contribution - Planning Variance
Sales Volume Contribution - Operational Variance
Sales Price Variance
Variable Cost Variance
Fixed Cost Variance
Actual Profit

Factors to be Considered When Investigating Variance

Size
Type of Variance
Cost
Pattern in variance
Budgetary process

Method Used for Investing Variance

Simple Rule of Thumb Model
Statistical Decision Model

Sales Contribution Mix Variance (Product A B C seperately)

Sales Contribution Quantity Variance (Product A B C seperately

Absorption Costing
Sales Margin Var = Act Margin - Bud Margin
A. SMPV = Act. Margin - Std Margin
B. SMVV = Std Margin - Bud Margin
a. SMMV = Std Margin - Rev Std Margin
b.SMQV = Rev. Std. Margin - Bud Margin
 i. Mkt Size Var = Budgeted Market Share % × (Actual Industry Sales Quantity in units – Budgeted I
ii. Mkt Share Var = (Actual Market Share % – Budgeted Market Share %) × (Actual Industry Sales Q
ard to the original standard.
sults against the revised amount

Traditional Var Planning Var

BP (BQ-AQ) BR (BQ-SQ)
AQ (BP-AP) SQ (BP-SP)

SP (SQ-AQ) SP (SQ-RSQ)
AQ (SP-AP) RSQ (SP-RSP)

SP (SH-AH) SP (SH-RSH)
AH (SP-AP) RSH (SP-RSP)

Profit (Marginal costing approach)

Budgeted Market Share % × (Actual Industry Sales Quantity in units – Budgeted Industry Sales Quantity in units) × (Average
(Actual Market Share % – Budgeted Market Share %) × (Actual Industry Sales Quantity in units) × (Average Budgeted Contr
Actual Sales Quantity × (Actual Price – Standard Price)
Actual Production × (Standard Cost per unit – Actual Cost per unit)
Budgeted Fixed Cost – Actual Fixed Cost

Std Cn x (Actual Sales Qty - Actual Sales Qty at Budgeted Proportion)

Std Cn x (Actual Sales Qty at Budgeted Proportion - Budgeted Sales Qty)

Marginal Costing Sales Variances (Turnover or Value)

Sales Contr Var = Act Contr - Bud Contr
A. SCPV = Act Contr - Std Contr
B. SCVV = Std Contr - Bud Contr
a. SCMV= Std. Contr - Rev Std Contr
b. SCQV = Rev Std Contr - Bud Contr
Sales Variance = Act Sales - Bud Sales
A. SPV = Act Sales - Std Sales
B. SVV = Std Sales - Bud Sales
a. SMV = Std Sales - Rev Std Sales
b. SQV = Rev Std Sales - Bud Sales
i. Mkt Size Var = Budgeted Market Share % × (Actual i.Industry
Mkt SizeSales
Var Quantity
= Budgeted
in units
Market– Budgeted
Share % ×
ii. Mkt Shar ii. Mkt Share Var = (Actual Market Share % –
 Operational Var
SP (SQ-AQ)
AQ (SP-AP)

RSP (RSQ-AQ)
AQ (RSP-AP)

RSP (RSH-AH)
AH (RSP-AP)

RSP (RSQ-AQ)
AQ (RSP-AP)

Sales Quantity in units) × (Average Budgeted Contribution per unit)

n units) × (Average Budgeted Contribution per unit)
e Var = Budgeted Market Share % × (Actual Industry Sales Quantity in units – Budgeted Industry Sales Quantity in units) × (Average Bud
are Var = (Actual Market Share % – Budgeted Market Share %) × (Actual Industry Sales Quantity in units) × (Average Budgeted Price pe
Output units
Q R A Q R
3000 1500 6250 9375000 1500 6250
5000 500 23750 11875000 750 23750

2000 30000 21250000 2250 30000

Traditional V Planning Var Operational Var

Mat Usage Variance SP (SQ-AQ) SP (SQ-RSQ) RSP (RSQ-AQ)
Mat Price Variance AQ (SP-AP) RSQ (SP-RSP) AQ (RSP-AP)

3000 Sales Usage Variance 0 0 0

3000 Sales Price Variance 16500000 0 16500000
16500000 0 16500000

Mix variance 625000

Vol Var

5000 Sales Usage Variance 2375000 5937500 -3562500

5000 Sales Price Variance 18000000 0 18000000
20375000 5937500 14437500

Mix Variance -2375000

Vol Var -3562500
s Quantity in units) × (Average Budgeted Price per unit)
nits) × (Average Budgeted Price per unit)
A Q R A
9375000 1500 17250 25875000 1400
17812500 600 53750 32250000 700

27187500 2100 71000 58125000

A. SPV = Act Sales - Std Sales

B. SVV = Std Sales - Bud Sales