MCS University Ques. Paper 2001-2009

8/7/2019 MCS University Ques. Paper 2001-2009

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Con. 2258-09.

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MflA<$UZ f1-q

(3 Hours)

88-9180

[Total Marks: 60

N.B. : I) Attempt any six questions out ofQ.Nos. I to 9. each carrying 6 Marks.

2) Attempt any two questions out ofQ.Nos. 10 to 12 each carrying 7 Marks.

3) Q.13 is compulsory carrying 10Marks.

yp:{ What is Responsibility Centre? List and explain different types of responsibility

centres with sketches.

Q.3.

~V

Explain briefly the various stages of management control process citing salientfeatures of each.

Every SBU is a profit center but every profit center is not a SBU? What are the

conditions that should be fulfilled for an organization unit to be converted into a

Profit Center? What are the different ways to measure the performance of ProfitCenters? Discuss their relative merit and demerits.

QA. a) "Transfer Pricing is not an Accounting Tool". Comment with illustrations.

b) Market price is ideal transfer price even in Limited Markets. Comment.

~ XYZ Ltd. has two divisions: A and B. Return on Invesbnents for bothdivisions is 15%. Details are given below :-

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Q.7.

Analyse and comment on divisional performance of each with respect toOperational Excellence and Marketing Effectiveness.

Enumerate the differences among following types of Audits:

a) Financial Audit (Statutory)b) Cost Audit

c) Efficiency Auditd) Management Audit.

Organizations with Business Divisions (Profit Centre) format have observed that

Divisional Controllers experience divided loyalty in,carrying out their functions,

causing a possible dysfunction. How could such a situation be resolved? Define,

role of Controller which suits your suggestion.

[ TURN OVER

Particulars Division A(Rs.) Division B(Rs.)Divisional Sales 40,00,000 96,00,000Divisional Investment 20,00,000 32,00,000.D.-fir 3,00,000 4,80,000





ws April 09 149

2258-88-9180-09.3

Q.12.\

Division B of ABC Ltd. contracted to buy from Division A 20,000 units of a

component which goes into the final product made by Division B. The transferprice for this internal transaction was set at Rs. 120 per unit by mutual agreement.

This comprises of (per unit) Direct and Variable labour cost of Rs. 20; Materialcost ofRs. 60; Fixed overheads ofRs. 20 (lumpsum ofRs. 4 Lacs) and Rs. 20 perunit as Return on Investment of Rs. 20 Lacs that Division A would require for thisadditional activity. During the year, actual offtake of Division B from Division Awas 19,600 units. Division A was able to reduce material consumption by 5% butits budgeted investment overshot by 10%.

a) As Financial Controller of Division A, compare Actual vis. BudgetedPerformance.

b) Its Implications for Management Control?

Q.13. Selected historical data ofShivangi Engines(SE), a company manufacturing diesel

engines and catering to Trucks and Agricultural markets is tabulated below:

* Face value Rs. 10/-.

SE began operations 55 years ago near Pune. Initially for a number of years, it wasclosely directed by Top Management, strong individual performance and knowledge of

details were emphasized; technical Innovation waS encouraged. Top Managers were

constantly on the production shop floor - checking work flow, Inventory, Employee

morale etc. Inspite of tremendous growth, facilitated by creation of additionalmanufacturing facilities, SE retained small town company flavour.

In 1984, Jaydev Hazare(JH) - lIT I 11Meducated-joined SE with a" 10 years previous

experience. He quickly rose to the position of Chief Operating Officer in 1990 at a young

age and was given formal-al1thorityover all operational matters. Financial Controller didnot report to JH. Two of top managers actively associated earlier became Chairman andVice-Chairman and others had retired.

[ TURN OVER

Year 1980 1989 1993 1994

Sales (Rs. Cr.) 136 392 637 802

Net Profit (Rs. Cr.) 6 18 26 24

Earning per share* (Rs.) N.A. 2.87 3.87 3.31

Dividend per share*(Rs.) - 0.71 0.95 0.98Returnon equity(%) - 14.7 13.9 10.8

Number of plants 2 8 13 14

Total production area (sg.ft. 1496 2224 2833 3340

-00)Market share 61.1% 43.5% 37.9% 40.1%

Engines produced (000) 10 44.5 57.5 63



\\'5 April 09 150

Con. 2258-88-9180-09. 4

Towards end 1994, JH anticipated sharp recession but continued inflation. He, therefore,

viewed company's inventory level (approaching 90 days stock) with concern. Also, there

was a major discrepancy between Inventory records of materials and finance departments

- equivalent to Inventory in one of Company's plant. JH knew that business involvedabout 20,000 spare parts and also that in some instances, engines which were otherwise90% complete, awaited balance items from suppliers.

a) Comment on company's performance (1989-1994) on the basis of Sales Margins,

equity turnover, production area used per engine produced and any otherinformation in the above table.

b) How do you think in such a large company (headed by experienced and

management qualified manager) such a problem affeCting management control--occurred?

OR

Q.13. A closely held small sized company Shayna Ltd. is involved in selling its. own

brand of coffee in Central and Northern India. Fierce competition is experiencedfrom large players like Nestle as well as regional and niche players. Major

Company sh~eholders are Managing Director'- who directly looks after sales and

Marketing;and Cpmpany Secretary c- who is responsible for purchase of rawmaterials (in the form of coffee beans) from sources located throughout the world.

All manufacturing activities including packing are carried out at three factorylocations each headed by a V.P. Each factory is a profit centre. Performance is

measured on the basis of gross profit made by each factory. For the entire

company, manufacturing expenses are about 30% of sales. Purchasing is very

crucial and involves understanding of worl~ market trends, making commitmentsfor purchase contracts for over 50 varieties. Raw material is bought in advance inlots for delivery to factory at various dates according to sales furecast. Whenever

actual requirement is different than the forecast level, difference in raw material

supply is made by purchasing department by sale / purchase of raw material in themarket. Purchasing maintains a record of quantity and price for each lot of rawmaterial and charges factory, according to the cost of lot delivered. Raw material

expenses constitute 51% of sales. Purchasing departmental expense (3% of sales)

is directly charged to head office.

How should manufacturing, marketing and purchasing be recognized as

responsibility centres to induce goal congruence within the organization andwhat should be the performance metric for each responsibility centre?

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(FURTHER REVISED COURSE) 88-7395

(3 Hours) [Total Marks: 100

N.8. Attempt eight questions; any five from Question Nos. 1 to 9 (each carries 12 Marks) and QuestionNos. 10, 11, 12. Question No.1 0 carries 10 Marks and Question Nos. 11, -12carry 15 Marks each. '

- c-

~ What do you understand by Goal Congruence? What are the informal factors that influence goal- congruence?

iflydefine Discretionary Expense Center, Engineered Expense Center, ProfitCentE

Center? Flowis budget prepared in Discretiol1;JryFxpense Center? How is performance of themanager evaluated in a Discretionary Expense Center?

~ Ever~BU is a profit center but every profit center is not a SBU? What are the conditions thatshould be fulfill€dfor an organization unit to be converted into a Profit Center? What are the differentways to measure the performance of Profit Centers? Discuss their relative merit and demerits.

-~~at are the objectives ofTransfer Pricing? What is ideal transfer price in the situations of :-/ (a) Limited Market -

(b) Shortage of capacity in the- industry.When do you use Cost Based Transfer Prices?

5. What are the different methods to evaluate the performance ot an Investment Center? Discuss the

merit and demerits of each? Which method would you recommend? ,/

- - ~ -What are the special characteristics of Professional Service Organization? How ~ -matKetingdoneln them.:? /;:/.ow,.dowe..~val.uate.the-peRGURaReO 8f u B~fe~~iAFlAI 9 - ~

""'-

(b) What is a Non Profit Organization? How is the performance of this organization evalua.ted ".

7. W do you understand by Balance Score Card? Why is it considered superior to other methods oferformance Appraisal? Prepare Balance Score Card for any organization you are familiar with.

-(a. What are the different types of Strategic missions at SBU Level? How do these missions affect

f'1"!.Strategic Planningprocess and Budgetingat SBLJLevel?

jA Write short notes on : (any two)

, (a) Free Cash Flow

;/ (b) Management Control in MatrixOrganization(c) Zero Based Budgeting(d) InternalControl.

10. Part of a multinational group, Sundaram Shoe Company(SSC), establ1she-d its oWn facilities in Indfa

over 75 years ago and enjoyed an excellent record-high market share for its diverse range of shoes,

growth and profits. SC markets its products ,through company own~d snops and its own personnel.

Organization str~tu~s functional. Sin'Ce2001 , profitability,-m.arket share are slipping. Pressure fromcheap Chinese s oes and also premium shoes like Nike has made the company think of organizational

restructuringanctintroducfngGomensurate ControlSystem to regain its position.AlthoughSSC outsources30% of products, it is seen as a production oriented company. SSC wants to adopt measures to

reduce costs, strengthen marketing and be in a position to produce and meet unexpected and unusualcustomer demands.

How should the company reorganize to achieve Goal Congruence? Define Performance Metric.OR

10. A well-diversified Company-Prasad International Ltd. sells one of its divisions to a group of its owncompany managers. Explain what significant changes in systems and control procedures can be

expected? Why? - [TURN OVER



282 : 2ndHf-1

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Con.5093-BB-7395-07. 2

11. Kamal Enterprises(KE) is a medium sized company with Rs. 225.Crores turnover for the year 2004-

2005, during which the Corporate Income tax rate was 40%. KE is planning to install a new equipment

worth RS.,-4.~0.re.S which is expected to improve quality resulting in increased turnover over currenty 6%and re uce variable expenses to turnover ratio by2%. However,8.48% increase in fixed expenseswould also result and net working capital would increase by Rs. 1.8 Crores over current level.Currently,the variable expenses are Rs. 150 Crores; Fixed expenses -As. 49.5 Crores; Interest Rs. 3 Crores;

Net working capital Rs. 36 Crores; Fixed Assets Rs. 51 Crores. Borrowings Rs. 3b l,;rores; Equity

Rs. 51 Crores. Return is measured pre-interest and t,axes on Capital employed."""1a) What is the present return on equity and capital employed?

(b) Compare these figures to respective figures post installation.

(c) Explain theE~ bywhich Gautam-Financial controller may determine relative importanceof parameters 0 be controlled to ensure~ject success.

Suresh Ltd. has two divisions. Div. A manufactures an intermediate product for which no externalmarket exists. Div. B incorporates the intermediate product into final product (in the ratio of one unitto one unit) and sells in the market. Estimated number of units which Div. B can sell at various prices

is tabulated :- .. ~

Selling Price (Rs.) Expected Sales (Units) ~,90 2000 !

80 3000

50 6000

Costing Division A Division BVariable cost (unit) Rs. 11 7,Fixed cost per annum As. . 60,000 90,000

Transfer price to Division B for intermediate product is Rs. 35 per unit.

(a) Define Profit in this case and prepare a statement for both Divisions and Overall Company~

(b) State fli'eseffing15liGe-vvhi,:;l.mCIJ~i..jiLe5'"~v:-B~d"'coml3any~as~olerComment ~

on why the latter price is unlikely to be sel€cted by Div. B. .OR .

12.. Two Divisions A and B of Satyam Enterprises operate as Profit Centers. Division A normally purchases'

annually 10,000 nos. of required components from Division B; which has recently informed Division A

that it will increase selling price per unit to Rs. 1,100. Division A decided to purchase the components. from open market available at Rs. 1000 per unit. Naturally, Division B is not happy and justified its

decision to increase price due to inflation and added that overall company profitability will reduce and

the decision will lead to excess capacity in Division B, whose variable and fixed costs per unit ar~'"respectively Rs. 950 and Rs. 1,100. . ",,'" .

(a) Assuming that no alternate use exists for excess capacity in Division B, will company as a 1

whole benefit if Division A buys from the market.

(b) If the market 'price reduces by Rs. 80.Rer unit. What would be the effect on the company(assuming Division B still has excess capacity) if A buys from the market.

(c) If excess capacity of Division B could be used for alternative sales at yearly cost savingsof Rs. 14.5 Lacs, should Division A purchase from outside?

Justify your answers with Figures. ~



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Con. 5260-06.

(3 Hours)" [Total Marks: 100 ,

N.S, (1).

(2)State clearly assumptions, ifany made. , ~

Attempt eight questions; any five from Question Nos. 1 to 9 (each carries 12 Marks) and Question Nos. 10,

11,12. Question No. 10 carries 10 marks and Qu\!.slion Nos. 11,12 carry 15 marks each (marks are shown

under each sub-question where applicable). MentiOn name of company in Question Nos. 10 to 12, whereapplicable. i~" .

1. Explain brielly the ,likelyfeatures of an IDEAL Management Control System in OAGANISATIONS.

V What is Balance Score Card? Describe process of implementation and possible difficulties,

&' Organisations with Business Divisions (Profit Centre) format have observed that Divisional Controllers, experience divided layaltyin carrying out their functions, ca~ing a possible dysfunction. Hc:mcould such a situation

~solved? Define role of Controller which suits your suggestion... . .

~Explainbrieflythe variousstagesof managementcontrol~ citingsalientfeaturesof each.

(;>What is a responsibility centre '1 List and explain diflerenttypes of responsibility centres with ske~c~es.

JV (a) .Explainhe concept of Aeturn on Investment (AOI). What are its advantages? . ,(b) ManyexpertsregardEconomicValueAdded(EVA)as a conceptis superiortoAOIandy~t in certain

cases, EVAdoes not do justice to the evaluationof investment centres, Explain thi!.> phenomenon, withiIIustration/s.

7. Explain various featues of Financial, Operational and Management Audit. lIIustra:te with one example.

B. (a) Describe the faclors which impact service organisations.

(b) Explainspecial characteristics of professionalorganisatiorls which would have a bearing on their control

@systems. .

9 (a) "Transler price is not an accounting tool" - Comme(lt with iIIustration/s. ,.

(b) "Market Price is ideal transfer even in limited markrJts' - Comment. \ § t."'" O. ~nniy; c1~any has twodivisions: A and 8. Aeturn c,n Investments forboth divisions is~. Details are

givenbelow- . ,

Particulars' Division A (R$..> Division 8 (Rs.)

Divisional Sales 40,00,000 96,00,000

Divisional Investment 20,00,OrJo 32,00,000

Profit cPr , , , ct--i,

Analyse and comr.nenton divisional perlormar,ce.of each... \~OA

10. A Well-diversifiedCompany- PritamInternalio~\alltd. sells one of its divisions to a group of its ~ companymanagers. EXDlain what significant change:, in systems and control procedures can be expected? Why?

11. Twodivisions A and B of SorlaH Enter~",rises operate as Profit Centres. Division A normally purchases annually

10000 nos. of required compone"':ls from Division B; which has recently informed Division A that it will Increase

selling price per unit to As..1': \JO.DivisionA decided to purchase the components from open market available

at As. 1000 per unit. N"~I':'raIlY,Division B is not happy and justified its decision to increase price. due to inflat ion

and added th~t over-"!:Icompany profitabilitywillreduce and the decision willlead to exCess, capacity In Division

B, whose varlabl..) and fixed costs per unit are respectively As. ,~and As. 1100. " '

(a) ~S' 6u.ming thai no alternate use exists for excess capacity in Division B, will com\?anv as a whole\ .Je~\efitf DivisionA buysfromthemarket. .

(t>J I;, the market price reduces by A~.BOper unit. Whatwould be the effect on the company (assummgDivision B stillhas excess capacity) if A buys from market.

If excess capacity of Division B could be used for alternative sales at yearly cost savings ofAs. 14.5 lacs, should Division A purchase from outside?

Justify your answers with FIGUAES.

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l' I. Girish Engineering is organised on profit centre basis. Division X has an offer from market to supply 5000units in a month at As. 1000 per unit. To execute this order, Division X must buy a oritical component from

Division Y at unit price of As. 220. Division Y has assianed monthly fixed costs agelinst this component atAs. 4 lacs and an yearly investmentof As. 2.4 cr. Competitive rateof return on investment is 10%, 'i?ivl~ion X

also buys other material from market at A~. 500 per unit. Fixed and processing costs of Division ~ areAs.290andnormalprofitmarginisAs.60perunit. .

(1) On the basis of costing, will the manager of division X be interested in accepting the market offer?

(2) Is this offer beneficial to the company as a whole? Justify with figures.

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Con. 5260-BB-7867-06. 2

12. Shivangi Company's controller uses Economic Value Added (EVA) method to measure divisional profitperformance of its three divisions - X, Y and Z. Company charges to divisions 5% for Current Assets and10% for fixed assets while computing EVA. Information on performance is given below ;-

'Budgeted I "Actual

On the basis of information given (in Rs. Crores)(1) Tabulate budgeted and actual return on.assets for each of three divisions.

(2) Tabulate budgeted and actual economic value added for each division.(3) Comment on the two methods based on tabulations.

. . OR

12. Ananaya & Company comprises of five divisions A, 8, C, D and E and the present performance metric Isreturn on assets. Howev!!r,the controller has suggestedmanagementto switch over to economicvalue added(EVA) as the crit.erionmther than return on assets. Compute and tabulate both return 'on assets and EVAon the basis of following information (Rs. lacs) and comment on divisional performance.

Controller feels corporate finance rates on current assets and fixed assets should be 5% and 10% respe~ively

is adequate.

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Division X DivIsion Y" Division Z

B" A"" B" A"' B" A"

Profit 180 160 110 120 100 100

Current Assets 200 180 400 380 600 7eOFixed Assets. 800 800 800 900': 1000 1100

Division Profit Fixed Assets Current Assets

A 300 800 160

B 220 400 1600

C. 100 600 1000

D 110 400 800

E 180 200 800



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,MCS(

:'1:n. 5430-05. (FURTHERREVISEDCOURSE)

(3 Hours) [Total Marke: 100

N.B. :(1)' state clearly assumptions, IIany, made.

(2) Atter11Ittolallyelght questions, IU'¥fIve fltJl)'l Clueslbn Nos. 1 to9 (eechcan1es 12 marks) and Oues1IonNos. 10,11 and 12.

, Question10 carries0 marks and QuesllonNos.11 to12 carry15 marks each.(Marksareshown under

, each sub-questlonalsowhere applicable)., .'

~ISCUS8 andUiustrate difference and simllaritesbetween-

, (a~ Strategy formulation and Task Control, ~) Management Control and Task Control.

y piscussconceptollree cash flow and describe p,rocess 01Its computation.

~ Describe and Illustrateignificance ofhuman behaviour patterns InManagement Control. '

~~ Describe 1dlfferences In bud~etlg perspective Of En~lneered and Discretionary expense cent~s. .

( (~Explaln problems faced Inpricingrorporate services provIdedto Business Unitsorganlsed as p~fIt centres.

5. ~ Describe Inherent difficultiescreation of ProfitCentres may ceuse and advantages possible? .Jill"J1') Under which situations creation of profitcentresIsNOT advisable7 .' WfIIII'"

~ 6'

fWhiCh management controlpractices, Iffollowed,Inperformance measurement of Investment Centres are likely

'.- InduceGoalCongruence,inrespectoffollowingssets:-

( . (a) (I) Idle (iI) ~ntangible (iii) Leased.' tMh..t"""': .. (b) (I) Cash (if) Aeceivables (Iii) Inventories.."..

'"7. ...(a)' Explain possible reasons for failure of Balanced Score Card? <

¥ Discuss special ~ha~lenges faced Incontrolling A and D activities and possiblemanagement Inltl:!:tlves.

8. ~ ('Whatareadvantages in conducting Internal Audit?

y<"lIustrate differencebetween Financialand Management auditwithan example. ~

9. ~Ij).explainsome factors_~~lchay inftuenceop Management styleand the ImplicationsfTop Management,

styleon-ManagefTIent~ntrol,_- -1--- '. "'- -., _.n, . .-.,-'" ,- ~ :.

.{\1)"ExpraTnaaVintage~and disadvantages oftwo step transferpricing and profitsharing methods. (

10. PritamEngineeringmanufacturesvarietyofmetalproductsat manyfactories.Currently, ItIs eocpeliencelng, crisis.

M~nageinent has, therefore, decided to Install detailed expense control system Includirigresponslbilltybudgets foroverhead expense items at each factory. From historicaldata, Controllerdeveloped a standard

foresch overhead expense'item (relatingexpense to volume of activity). ~mmarised expenses for November, 2005

giventoconcernedProductionSupervisorforcommentsIstabulated. Allfigures are InAs.000.

(a) f:xplainwith justification which of the two stand8rds (1)or (2) Is more meaningful for expe

{b) Canthe supervisorbe heldresjx)Osibieoralloverhead expenses Included? Whylwtr{ not ?

1.\.\ . ,Or" . ,

1O. Identify'and explain Indetail what significant changes Inmaoagement control system and control procedureeyou'would expecttosee InAnanya International-asmalldiversifiedompany afterItIsbought 'Outby a group

ofcompany managers. . "Ir.J)'

11, KalyaniEnterprises(KE) Isa medium sizedcompany withRs.225 Cr turnoverforyear 2004-05, during which

. the Corporate Income Tax rate was 40%. KE Is planning to Install a nelN equipment worth As. 4.5 Cr which Is

expected to Improve aualityres~,lIting!1lncr~ased turnover.over cUf!8ntby 6% and ~uce var~e expenses to

turnover ratio by 2%. However, 8.48% Increase "In fixed expenses wouldalso resultand net ~rklng capital

would Increaseby As 1.8 Cr'over currentlevel. Currently, the variable expenses are As. 150 cr; 'Flxe~c '

expenses As. 49.5 Cr Interest As. 3 Cr; Net working capital As. 36 Cr; Fixed assets As.51Cr. Borrowinu~ .Rs36Cr; EquityAs.b1 Cr. Return ismeaSUred prelOtereStna taxes on{japltalemployed. '

(a) WhatIst~'tt returnonequitynd cepitalemployed ?(b)' Compare these .f~:.Iresto respective 'figures post Installation.(c) Explainthe proC8fs bywhich Girish-Flnanclal controllermay detrmine relative importance ofparameters

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nem Standardatno1 Budgeted at actual . Actual.- volume (1) . volUile (2)

ManagementSupervision 720 70 - 582 rIndirect labour 12706 11322 - 12552Idletime 420 361 711

Materials,ools 3600 3096 3114

. Malntenance,sCrap 14840 13909 17329

Allocatedexpenses 21040 21040 21218

Totalper ton (Rs.) 2133.04 2103.39 2413.30

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Con.5430-8B.8142-05 2

11. ATVdealership, VeenaTelevision (VT) Isorganised Intofour profit centres-Colour TV sales (CTV); BlackandWhite (BW)TV sales (BTV). Spare Parts (SP) ; and SerVicing (SGHach headed by a manager. BTV, In

addition toBWTVsales,also sells oldTVs exchanged (under scherne) byCl.I8tornerBwhile purchasing new CTVs.

In one parlcularlnstance, a new TV was sold for As. 14150 (financed by'cash As. 2000, Bank loan As. 7350 ;and As. 480G-exc:hange price for old TV agreed by CTV manager). Cost of new TV was As. 11420. ShlvanglManagerofBT\I,examinedthe oldTV(Wluedat As.3500 byTVtrademagazines)and feltthat she could get As.5000for thatTVafter repairing cabinet, resetting and servicing for which she would use services of (SP) and (SG).

Prices chargeable to BTV by (sF») and (SG) are at market rates-Rs. 235 for parts (by SP) and Rs.470

for Services (by SG). Market prices are arrived at after marking up cost by 3.5 times (SG) and 1.4 times (SP).BTVpays a service commissionof Rs. 250 per TVsold. Overhead fbtedallocations per sale are :C'tV-Rs. 835 ;BTV-Rs.665; SP-Rs.32; SG-RS.114. )

Compute at (a) Market price (b) Cost price, Gross and net "roflt for each profit centre., I

1fr For efffective strategy Implementation, Soniya Ud. (SL) has been organlsed on product decentrallsation basisand ,each division is headed by GM (General Manager). GM Is responsible for manufacturing, purchasing,

finance and marketing activities for liis divisional product group. Performance measurement Is Return on

Investment (ROI) of division. Annual budgets'are split up intofour quarters and at the beginning 01~~h quater,

performance of previousquarter is reviewedand budget forfollowingquarter maybe revised in consUltatlOl)WIthGM.Data for div P Is as under. Figures In Rs. crores.

),

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(8) Reviewhefirsfquater'perforrnaneeon theoasIs~c!ompU1atl~n of various parameters.

(b) Would you suggest any revisions for the second quarter budget 7. Whylwhy not. Justify.Or ..

12. ~ Qlosely held small sized company-8hayna Ud.-Is Involved In selling Its own brand of coffee In Central and

/NO!1hern Indi~. Fierce Competition is experienced from large players ~IkeNestle' as well as region.' and niche

, players. Major Company shareholders are Ma'naglng'Plrector-who directly looks after sales and Marketing;

and Company Secretary-who is responsibl,6 for purchase of raw materials Onthe form of,coffee beans) fromsources located throughout the World. All manufacturing activities Including packing are carried out at threefactory locations Qachheaded bya v.P. Each factory Is ~,profit centre. Performance Ismeasured on the-basis

of gross profit made by each factory. For the entire company, manufacturing expenses are about 30% of.

sales. Purchasing Is very crucial and Involves understanding of world market trends, .making commitments

for purchase contracts for over 50 varlaties. Raw material Is bought In advance In lots for delivery to Factory atvarious dates according to sales forecast. Whenever actual requirement Is different than the forecast level.difference In raw materialsupply Ismade up bypurchasing department by sale/purchase of raw material Inthe

market. Purchasing maintains a record of quantity and price for each lot of raw material and charges factory,according to the cost of lot delivered. Raw material expenses constitute 51% of sales. Purchasing departmentalexpense (3%ofsales) Isdirectlychargedto headoffice. '.

!:low should manufacturing, marketing and purchasing bereorganlsed as re8ponslblllty centres to Induce goal

congMnce withinthe organisation and what should be~e performance metric foreach responslbUitycentre ?

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Budget- ActualQuarter 1 Quarter 2' Quater 1

Acountreceivable 8 7.5 8.50Cash 4 4 2.0

Inventory 18 16.5 21.50Fixed assets 20

'20 20.

Factory 'costs 21 19 17

Marketing Costs-'

7 6 3

Freight 1 0.90 0.80

Administrativeexpense, 3 2.6 3.2

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(3 Hours) ( To!t"Marks: no"

N.B. (1) State, cl..rly'a~s'un''pj~~t~Yi;.m~':.:'';',: ",i!'" ',': .,,', " ,

(2) Attempttot.~I1Y,.lg1W~~:~'a:I)Y~~P.1,~tJ~8tRStrNot?,.,1t~!~O~(..Ch carries 12 marks) andQuestionNos. 11,12; 't3.. QUestlen'Ne.,11 carries .14J.:-marks'.Question Nos. 12 and 13 carry 15

. markseaCh.'SUbffiiifk.~~ttfliJ:a\;i¥i~Noa::;'d~l2ii1,~.re,ln~c~t~d. ~,/'I. Explain bFlefly features'ofa",l£)l5At~,rtt8nagemeiifContFofsY8tem.' , " " ', , ", ' ','C '-- ' ,'. ,,' , ,,0 '-,' ' ,. - , , ,"- , .,' " '

'2. What is the concepto( free caSh' flowas'appl18d tC:ian -organj~tl9n '?,'Expiain' procesSof computation.; " . . ,,~ "" ,,: " ,', ,"" "" ' ': " " : ,'"'' 1",,: ~

3: Explairi dlff.ere.nt Organisatlonal Gt»als.Comme!lt 9ngoal of share I'IQrdervah.Je rna;ximisatl6,r In '

,partlcurar:'~, ,," :''', , ',' , .,-'- ',- ;"',, ,:"', ,- ,

4. Writeshort notes on'any two : ,', ' '"

(!!)CotiO$pt ot profit c~ntre in non-profit organisations

A) ImpactofTop MlmagementSty)e on Mat\agertl'nt Controls ' .J

. ,(c) Management contrOl 11'1natrUcstruotures ' . ,'\

'(d) Implications of differentiated strategies on ~ntrdls. ".

0 (a) "TransferPricing is not an AccountingToar; com~ent withlllus'tratlon~. :,':(b) Market'price is ideal transfer' price even InLimitedMamets. Comment.'

,~ "

.,'6. Explainand illustratewithone exampl6the'dlfferences between three formsof InternalAudit-Financial,

Operationaland Management. " , ','" " ' ,

L. ' ,

~ What Is Balanced-Score Card? What Is the process of implementation and difficulties In Implement~tion?

8. MCSdesignersapPar.entlyisagreewhethera SINGLEmeasureto evalu'ateprofitperformanceawlCar>itallnveatrnentormance Is preferrable or SEPARATE measures for,each arepreferrable-:- Comment.

Q/\yhat are the different methods to,measure profits of a profit centre InO{gal'!lsa,tlong? .Wpich diH~rent/ messages _:type of measure IsHkely.to convey to managers,? ~

)0. (a) Explain special chatab(~r\$ticS of profess!°na/ °Jl~f!isa~!ol'!'wtii~'IIDf.'ctMltna9!9mentGootroL---.(b) Whetare interadtlve comrols l' ~'.t't'~I~ ' ~~ .&qj(~~-., "',; "",' IC ..",,".', ,

11. Aesponsibili ty budgeting was IntroducedIna medlu'!1sized organisationGlrish Engineering. Monthlyreport (In part) f,oran expense centreJn factory Is: '

, 'All Flgurel In RI. lacsActuaf Variance

Direct labour and material 100.13 0.21, (Favourable)Indirect Labour, Power etc, 68.34 8.51 (Unfavourable)Total C<;mtrollableCosts 168.47 8.30 (Unfavourable)Department Fixed Costs 38.82'Allocated Costs 53.62

(8) Why no variance isshown"n two items? Is this correct approach in performance reporting? 5(b) Shouldoverheadexpensesmentionedabovebe includedinControlableCosts? Why? Whynot? 5

, ' ~ ' ,

11. V~na Pvt.Ltd.,a smallmultiproductCompanyis taken overby a multinationalCompany(e,g. Hindustan 10Lever).Whatchanges in thecontrolsystemwouldyouexpectand wh)'?

12, Budgetversus ActualComparison for dlvZ of KlrBnCompany Is as follows:All Flgur.. In R8. lece

Budget ActualSales and other Income 800 740Variableexpenses' 480 436Fixed expenses 120 120Salespromotionalexpenses 40, 28

Operating Profit 160 156Net Working Capital 400 412Fixed assets' 160" ,148

(a) Carry out an overall performance analysis to decide areas needing inyestiga,tlon.(b) What remedial measures, " any,-wouldyousugge$t based on the analysis 7Or

\2.. Division B of Shayna Company contracted to buy from DIY.A, 20,000 units of a co'~ponent whichgoes into the final product made byDIv. B. The transfer price for this internal transaction waz!fd atRs. 120 per unitby mutualagreement. Thiscomprises of (per unit)Direct and Variable labour co~i:ofAs. 20; Material Cost of As. 60; Fixed overheads GIfRs. 20 (IumpsumRs. 4 lacs) and Rs. 20 per unit

as Return on Inves~ent of As. 20 lacs that Diy.~would require for this additionalactivity. During

(!) \' [ TURNOVER

'~,

,"....-

[

)

'S7

!,

i!r

!

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(iI



CROUl44~BB"'0-04.

'5

'I'2

'.

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3e'-C:\F>"5\D-fNDH'D.N~..

the year, actual off take of Dlv.B fromDlv.A was 19;600 unlt~. Div.Awas able to reduce materialconsumption by 5% but its budgeted Investment overshot bY10%. >. . ~\

. (a) As,FinanclalControl~r of Div.A,compare ActualVs Budgeted Performance. ' 12(b) Its imclicat/onsfbt Management Control? 3

13. DI:.'isionof.AparnaCompanymanufactures ProductA,whichIssold to another divisionas a componentof its product B; which then is sold to third division to be used as part of its Produ~ C (sold tooutside market). Intra compa~y transactions rule: standard cost plus a 10 percent return on fixed

assets and inventory,to be p~ld by the.buylnrrrtfV!slon,r",, . . . " "'. , ". '. ." .' , "', ,., ,-

.Standard'Cost per Unit' - i;'~';(wPtoductA:'" ProductB) " '

.Purchase of outside material, (Rs.) 40 00 20Direct Labour (Rs.) 20 :20. 40Variable overhead (As.) 20 20,:'.,,',~\ ';r:'''',40'~ ,-Fixed overhead per unit (As.) 60 ,,-8f{~'. 20 .,

Average Inventory (Rs.) i, 14'racii >~'A,\'W~ I~cs" ,6 lacs . ~~\'b /','Net Fixed Assets ',':(Rs.), ~".-6'lacs. 9..Jacs q., 3.21acs 0'4

Standard Production. (Units) 2 lacs 2 lacs 2 I~cs(a) .Det,erminefromabove'(jata.tranSferpricesfor'ProtluctsA,B and Standard ~8t of Product C.'(b) Product C could b~comeU!'ICompetitiveslnce.upstreammargins areadd$.~: Comment,

Or "lii~'

13. DivisionsM.P and ~,of ~anya lid. are respeotjyelyengaged InactivitiesofMal1<eting;Manufacturlng;Both, Control is through Aeturn on Investment FI)(edassets are depreciated on straight line basis.(10 years). Performance is : . ! ::. .

Product C'" c,..

-'0

5.-'

~1"1-"

. Fivureein Re.l.cl

. ' ' . ~. ,Dlv. M Dlv, P' . [)iv, C

.Profitbefore depreciation and operating expo . . 400 400 ',400Current assets .c' ;: 200 200 200 .

Fixed a$sets' ' 'nil, 1,000 500Operating expensesforDMsions M, P and C are respectively (all in Rs. lacs) :'2ooj 100; 15q.(a) Compare AOIforeach division. ' ',. '

' ~-~) AMIyee end comment 00 rel8tionshlp,lf-any, ,between ROI achjeve4-aod $e dMsioI'Ialactivities.

(

87

" ,, 'j:;



~:C~

(!)o- U>~~

~'--\'cs

'N.B.(1)(2)

KK.7712

. (3Hours) [TO~IM.rk~ 00State cle.rlv assumptions, Ifany, made.AUempttotally eight questions- any five fromQueatlon N~f 1 to 9 (each carrles12 m.rka) andQuestionNos. 10,11 and 12. QuestionNo.10 carrie. 10 marks and Question No.. 11 and 12 carry15 mark. .ach. (Marksare shownunder each .ubquestlon.)

, .

I

i.1.

~ What are the objectivesofTransferprtce.? Underwhichcondition..a Transferprtclngmechanism, Is likelyto induceGoal congruence? .' ,

~ Explainadvantages and disadvantages of two step pricingand profitsharing methods.

2. ~short notes(anytwo);- .

V""~ Strategy formulationand task conlrol ..~ Use of ProfitCentre Concept in a non-prolltorganisation(c) Matrixstructures and controls ,. I

(d) Free cash flow.

3. (a) Whatare the pitfallsof Balanced Scorecard? .

(b) Which factors need to be borne In mind by the management In controlling activities of Research

~d Development? .

~ DefineEconomicValueAdded (EVA). Discuss Itssuitabilityas Investmentcentre performancemeasure. , . .

.JbY' Explainfunctioningof a standard control system withsketches. .

12

12-----

12

12

J,J'

5. (a) Identifyobjectives ofOrganlsatlonal InternalConlrols.(b) 'nsplte of notbeinga statutoryrequirement,manyQrganlsatlonshave StartedusinglIJI:\mjHntemal

auditing." Comment.

r 6. Organisations withDlvislonallBuslness Unit Organlsational format, have observed that DMslonaJcontrollerS' .~experlence dividedloyaltyin carryingout their functions. causlng'posslble control difficulties. How

could such a situationbe resolved? Definerole.ofcorporale controllerwhich suits your sugges!lon.

,.~ Expliilnbrieflythe va~ous stages of orga!:'lsatlonalmanagement process citingthe Crltlcali: ofeach.8. "Foran.engineered (standard) expense centre. zero based budget Is not necessarY"- Comment In

details. '. .

12

12

12

12

".

9.

~Briefly explain the nature of the information needed by managers to carryout control activities.Brf'eflyexplain with suitable dlagramatlc representation, key dHferences between,a functionally

, structured and profitcentre decentrallsed company. ExplaIntwo major advantages and disadvantagesof each.' .,. .

12

. 10:.,-Part of a multinational group, Soniya Shoe Company (SSC), established Ita own facilities In India over 10\---"'" l.!!years ago and enjoyed an IIAntmcnrd-hlahmarkatshare for ita diverse range of~~~ .

. Olldprnfih<sa marke~pmducts throuQholllDanywnedsho~ andItsownpersoMer..Oij)8nlsatlonstl'lK1.tureIs functlon~. Since 2001. profitability. market share are sipping. Preiill'lIII hUl!l ~ Chlnesa~ awopremh.rn.."., I" !\Jilt.. made thecompanyhrnkoforganlsationalestructuringanij Introducing om' rate ControlSystem to regain Its posItion. AlthoughSSC outsources.~O%of products. It Is seen as a ro uc Ionor n company. SSC wants to adopt measures to reduce.msts. strenafhenmarketingand be Ina positionto produce.!...ndmeet'unexpectedand unusualcustomerdemands. .' ---Howshouldthe company reorganlse to achieve Goal congruence? Defineperformancemetric.

. OR

10. sse (mentionedabove)has decidedto Implementa delalladBalancedScorecard. Helpthe Management .10In this task.

11. Selected.hlstoricaldata ofShlvanglEngines(SE),a Companymanuf~rlng dieselengines and cateringto T-rucksand Agriculturalmarkets Is tabulated below:

Veer 1980 1989 1993 1994Sales (Rs. Cr,) 136 392 637 802

Net Profit (Rs. Cr.) 6 18 26 24

Earning per share- (Rs.) N.A. 2.87 3-87 3-31

Dividend per share- (Rs.) - 0.71 0.95 .0.98

Aetum on equity (%) - 14.7 13.9 10-8

Numberof plants 2 8 13 14

Total productionarea (sq.ft. - 00) 1496 2224 2833 3340Marketshare 61.1% 43.5% 37.9% 40.1%



CROU/4514-KK.7712..()3. 2 ,"SE began operatlops 55 years ago near Pune. Initially for a number of years, It was clO88ly directed

by Top Management, strong Individual performance and knowledge of details were emphaslsed: technical

Innovation was encouraged. Top Managers were constantly pn the production shop floor - checking

work flow, Inventory, employee morale etc. Insplte of tremendous grdwth, facilitated by creation of'

additional manufacturing facilities, SE retained small town company lIavour.

In 1984, Jaydev Hazare (JH) - IIT/IIM educated-Joined SE with a 10 years prevloOs experience. ,He

quickly rose to the position of Chief Operating Ollicer In 1990 at a young age and was given formalauthority over all operstional malters. Financial Controller did not report to JH. Two of top managers

activelyassociatedearlier becameChalrm,anand Vice-Chairmanand others had retired. ,

Towards end 1994, JH anticipated sharp recession but continued Inflation. He, therefore, viewedcompany'sInventorylevel (approaching90 days stock)with concem. Also, therewasa major dlSCf'Elp8ncvbetween inventory records of materials and finance departments-equlvalent tQinventory in one of Company's

plant. JH knew that business involved about 20,000 spare parts and also that In 80me Instances,

anglnes which were otherwise 90% complete, 'awaited balance Items from suppliers,

(a) Comment on company's perfomiance (1989-1994) on the basis of Sales Margins, equity turnover,

production area used per engine produced and any other information In the above table.

(b) How do you think in such a large comPany (headed by experienced and management quanfled

manager) such a problem affecting management control occured ?. , Or

Figures in As. Cr. (for 2001) for Sonali Company (SC) are tabulated below:Income statement Balance Sheet ' '

Sales 225 Debt . 36

Variable expenses 150 Equity 51

Fixed expenses 49.5 Fixed assets 51

Interest 3.0 Net working capital' 36 .

Corporate Tax rate is 60%. Performance measurement Is Return (prior ,to Interest andTax)on Capital

employed. SC is planning to install new process machinery for Rs. 4.5 cr. Marginal Increase In networking

capital would be Rs. 1.8 cr. Fixed expenses would increase by 8.48%; variable expen8es to salesproportion would reduce bf'2% and sales would Increase by 6% with this new process.

(1) What is the preser\t return on equity and return on capital employed?

(2) Compare these ligures to respective figures post installation.

(3) - ~'5P~k' the p~ by .wPlcI1flnanciaLControu&r.may .Qatennlne relative Importance 01parameters,- to be controlled to ensure project success. '

12. An~ya Ltd. has two divisions. Div. A manufactures an Intermediate product lor' which no externalrket exists. Dlv. B Incorporates the intermediate product Into final product (In the ratio of ,one unit

to one unit) and sells in market. Estimated number 01 units which Dlv. B can sell at various pricesIs tabulated: .

Selling Price (Rs.) Expected Sales (UnI18), 90 .2000.BO 3000'

50 6000

, Costing Dlv A Dlv B

Variable Cost (unit) As. 11 7

Fixed cost per annum As. 60,000 90,000

Transler price to Dlv. B for Intermediate product is As. 351. per unit.

(a) Define profit In this case and prepare a statement for both Divisions and Overall Company.

. (I) - State the selling price which maxlmises profits lor Dlv. B and company 88 a whole. Commenton why the latler price is unlikely to be selected by Dlv.B. '

OR

12, A factory is currenlly working at 50% c~paclty and produces 10,000 units. At 600/0capacity utilisation,

~'\ rawmaterialcost Increasesby 2%and sellingprice fallsby 2%. At 80%~acity utilisation,raw

V r material costs Increase by 5% anc;iselling prices fall by 5%. At 50% working the product Cdsts~s. 180 and is sold at Rs. 200 per unit.. The Unit Cost of Rs. 180 is made up 88 follows :' Material -

~, Rs. 100; Labour- As.30;Factoryoverhead Rs.30~xed); Administrativeverhead- Rs.20/' (50% fixed). ~~,,/q)

,(a) Estimate profits at all three levels 01~ ulillsation.(b) Commentn ~ on implicationsor ManagementControlsIn differentfunctions.

10

5

11.

V l~ <!I

SH- L1.S~~

555

105

105



, r - . ;,.-, -..' -\)'VV- -, .

~- /:,. VI " S ~() £~~L .:' 5-02. j '( C -::-<- <r

. (3 Hours)

N.B.: (1) State clearly assumptions, if any, made. .

(2) Attempttotal!x..laht Questions- anyJlye from question nos. 1 to 9 (each carries 12 marks),.andquestion nos. HI, 11 and 12. Question No. 10 carries 10 marf(s and question nos. 11 ar\d 12carry 15 marks each. .

1. Write short' notes on any two (each carries 6 marks) :-(a) Impact of Management style on controls.(b) Fr~e Cash Flow.(c) Management Control Process in organisations.

(d) Implications of differentiated strategies on. controls. .

2. Under which conditions M",nagement is better ad~ised not to create Profit centres 1~ the

adva~es of creation 01 Profit centres. . .

3. (V'" Describe the salient features of cost based and market price based transfer pricing methods.(b) Explainthe problems faced Inpricing corporate services furnished by corporate services staff

\1\to business units in the company. Assume profit centres decentrallgation.

t~-"'~.'.What is a Responsibility Centre 1. List and explain different types of Responsibility Centres In

",: ~ organisatio~. '.

!C ~a) What are interactive controls 1~ (b) Discuss features of Management Control System in Non-ProfitOrganlsations.

.~ ~ Explain the concElptof Retu~non Investment (ROI). What are its advantages?(b) Experts regard Economic value added (EV~)as a concept superior to ROI and yet, in certain

/ cases, 5YA.does not dojustice to the evaluation of Investment centres. Explainthis phenomenonwith illustrations, if)1eCessary. .

! r n. ..,.explain the concept of Goai congruence arid the various factors which Influence the goal congruence

. '/ withinthe organisation. ~ .

B8.5682

[Total Marks: 100

8. Explain various features of Financial, Operational and Management Audit (all of which are formsof Internal Audit). Illustrate with.one example. '

9. InvestmentBase used inperformancE>valuation of investment centres consists of vario!Jselements.-' Explain general practices used In organlsatlons in treatment ot each element and the likely re.,. '. -.sponse Induced by the treatment of each of these elements in managers.

. .- .'. . ; -.

" 1)l:. Usha Products Ltd. has three divislons- Professional Services~ Consumer Products (CP) andIndustrial Products. Each of these divisions-contributes equally to total company sales, but the

" . ,\,- characteristics of-business are different for different divisions. Consumer Products (CP\ division" ..a.t is the oldestofthe three. Itis involvedin designing, manufacturing and marketing 8 line of househOlJ;L

2!oducts, mainly used in kitchen. Each division Is a profit centLe and criterion for performance. evaluationis Return on Investment (ROI). There hasceen a general discontent among managers,that thQ..B0101CP division is highest among all divisions because of the older assets employed,)n theCPdivlslO!l.Managementhas decidedto Implementa detailedBalanceScore'card Inltiallv

.- for CP division. Assist the Management in this task. '

'. . ~ .\10. Year end informationabout twoeXDense cAntcasin an organisatlon..provlcti".;'.rvlces 1$tabulated

beJowto be used for review and Derformance appralapl. All figures are In As. :-

/ Centre Budget Actual Over Budget Under BUd9~t. ,!>e 5.0 A 13,30,893 13,85,154 54,261 - 'Y-""'....B 11,76,302 11,30,073 - 46,229 :L-. r

10

10

Mf

!

2

Manager to whom the heads of these two centres report Is not clear on how to use the.avallatltinformation for evaluation.Assuming that any furtber information requested would be aviillable (on'o~oper justification), assist the/manager in his task of evaluation. .

-,

)-.@ [TURN OVER

Total 25,07,195 25,15,227

Number of PersonnelA 46 46

B 26 24 ,..



~

. CROU/4055-BB.~682.02. .' 2 . . . . .~ .

1Management.of M/s. Deepak Engineering Is 190klngInto the problem of ~.alntenance cosh: '\function of maintenance is to ensure that the plant and equipment are Tngood working condlt&.This Is partlyfrIe' resDonslblUtvof the maintenance departmQnt which Incurs costs when It carriesout repairs or does other maintenance work; as well as' the production department superVisors..!.."who can Influence the amount of maintenance by how well they take care of their equipment \Company's Controller Is considering the followingthree methods In which the maintenance costscan be charged to Production departments/sections :-Method 1: Do not charge any maintenance cost to Production Departments/sections.'Method 2: Apportion total maintenance costs on the basis ofvolume of activityInthat department

or section.

jv'ethod 3: Charge each departmentor section for the maintenanceworkat a prescribed hourlyrate. for each hour that tM maintenancepeople workin that particulardepartment or section.Each of these methods gives different "message" to Production people.

1i1'~h of these methods, which is the different "message" as to how the production supervisorsshould view their responsibility for maintenance? State and explain your logic.. Or'

Document Processing is the activityinwhich DlvDPof an organisation is involved. This Isthe major 15 .

activity of the organisation, which It, In fact, eered. However, between 1990 to 2000, market ..

share of document products felldrasticall b 0 Comcetitive products were being offered almostat prices equal to me pro uct costs of Div.D. nfortunately for the company, the other divisions

are showing fI.uctuating financial performance. .'. , :.1\Based on the informationtabulate"dbelow and ~ssuming that Dlv DP utilises 70% of total comp~' .

assets ;- .:' .. f - -' "",- . '.~ 1(a) Compute ROA for Dlv DP for year 20Q1 and 2000. .' .' . \(b) Assuming that market exists should the company divest divisions other than Div DI.:? ,

Why/why not ? '.~ . . ((c) Where do you think financial 'discipline by Top management is Im~edlately necessary?, ~~.

Justify one area.Year

Sales (Rs. Cr.)Division DP ,Thtal Company

Net Profit (Rs. Cr.)DivisionDP

Total CompnayFinancial Position (Total Company)Current Assets (Rs. Cr.)

~ Total Ass~ts (Rs. Cr.)(Long Term Debt: (Rs. Cr.)'shareholders Equity (Rs. Cr.)Earning per share (As.)Dividend per share (Rs.)'

2001 2000-. QiaD

17.83

13.58

17.97 . -"

0.54 0.55

0.45 0.24

. -,. .

21.77 ~r"-~ 31.64. . 7.155.14 5.06-3.86 1.663.0 3.0 }

: ~ .

11. Omega Co. has divislons.:.-Mand.N. products required by division N are currently being outsourcE. ) 15

at Rs. 29 per unit. Div. M also makes these products and can sell either to division N or to outside ':'J/'markets. Current capacity of division M is 50,000 units. Div. N sells its products at Rs. 40 per 'flunit in the market. Income statement for. both divisions and the company is as under ;-

.'

\

.--~_.,

" .

'./

Div M may be in a position to create an additional capacity of 20,000 units at no additlc,na; flxsdexpenses. However,it can only continueto sell 50,000 units in the market. .'

(a) What shouldbe done by the Companyas a whole? iJustifywith figures.

Dlv M Dlv N Omega Co.(Rs. lacs) (Rs. lacs) (Rs. lacs)

Sales50,000 units @Rs. 20/unit 10 - 1020,000units @Rs.40/unit - 8 8

- - -Total 10 8 18

, ExpensesV.ar/abfe

50,000 units@Rs. 10/unit 5 - 520,000units @Rs.30/unlt - 6 6

Fixed Expenses 3 1 4

Total Expenses (8) (7) (15)- - -Gross Income 2 1 3



, , ."I .

~40."""'...'.o.. . .

7;:" Shweta Enterprises used Economic value added (EVA) method for measuring divisional profit

performance for Its three, divisions - J. K & L. Company charge to divisions for current assetsis 5% while for fixed assets it Is 10% In EVA computation. Info.rmaflon is given below (In As. Crs.)on their performacne :-

15,

Dlv J Dlv K Dlv L

~\

Profit

Current assets

Fixed assets

*Budgeted.. Actual

on the. basis of information given ;-(a) What are the budgetedand actual Aetum on assets for each of the three division,s? (Tabulate)(b) What are the budgeted and actual economic value added (EVA) figures In-As. Crs. for each

of the divisions (Tabulate).(c) To, what extent actual EVA 15below or above the budget for each-of the three divisions?

Or ,

12. Vijay Enterprises has three divisions. One of these manufactures Product A, which Is sold to another 15division as a component of Its Product B. Product B is In turn sold to the third division which uses

it as a component in its Product C. Product C Is sold in the outside market. Company has a rulethat when products/components are transferred from one division to another. standard cost plus a10 percent return on fixed assets and inventory would be charged to the buying division.Transfer prices of products A and B as well as standard cost of product C are required.(To be usedfor performanceappraisalof divisions)on the basiS:)of followingInformatlon-:-

Standard cost per Unit Product A Product B Product C, '.'" 'f,

.Purchaseof outsidematerials(As.) 20 30 ' 10

Direct labour (As.)' 10 10 20

Variable overhead (As.) 10 10 20*Fixed overhead per Unit (As.) 30 40 10

Average Inventory (As.)'" 7 lacs 1.5 lacs 3 lacs

Net fixed assets (Rs.)" 3 lacs 4.5 lacs 1.6 lacs

Standard Production (Units) '. 1 lac ' 1, lac 1~ lac /'

B*

90

100

400

AU B*

50

300

500

50

350

550

AU B*

55

200

400

A**

80

90

400

60

190.

,450

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(FURTHERREVISEDCOURSE)-, . '

(3 Hours) (.,/) ECI./~Jy~ T~t~~Ma~,k~,:100. .' 'l ',,,

ISlate clearty anyassumptionsmade. . - .~ :._""":'-~'~-'-Attempttotallyeight questions-any 1IveIromquostionNos.1 to9 (It.a<:hiarrles;2 marks) and ---questions 10, 11 and 12. Question No. 10 carries 10 marks and questlo~ Nos. 11 and 12 carry 15marks each.

i .; l; ! '. /

}I

,.(i '.-", '., 89-5583

I, HoYiis AI (EVA)analysis carried out? Explain advantages and disadvantages.

2. Discuss the significance 01human behavioural pat!erns In management control.

3. (a) Explain hONdillerenttypes 01expense ce~tres operate with help 01skelches.(b) Explain the significant features and the budge I process In these centres.

4.. 'What is a profit centre? Explain the conditions under which a profit centre decenlralisation willbe themost beneficial to an organisation.

5. (a) "Transler price is not an accounting tool". Comment.

(b) Stale the conditions under ~hich transler price mechanism is likely 10InduceGoal congruence.

Explain with iI!\lstrations the different ways inwhich the profit objective of a profit centre can be stated'and conirolled. What role do corporate over head allocations play Ihthis process? .

6.

'-

7. (a) . Explain the concept of "Balanced Score Card".

(b) How can Balanced Score Card be Implemented in an organisation?

8. (a) "Internal Auditing means nothing but policing". Comment.(b) Identily some internal controls. .

9. (a) Discuss soma of the factors which have an impact on most service organisations.

(h) Identify special characteristics of Professional organls;itlons which would have bearing on theirmanagement conlrol systems? ". . .' -. - .

10. The Budget Vs Actual comparlsOftlor Division ABC of Company X at the end of hali, yoarM.llastlollows ;- ... to ~ t...

'l"P'- tiff" (All figures In Rs: ~ac:~).. .(.! . ' 9i$'"Budget Actual . ~I)-o t. ...:..

Sales 200 185 l'L.1..- rMaterial and other VariablfJcosts ,120 \ II 109 , . ~~ '7..N

Employe~ and other fixed expen~es 30 - 30' .

Sale;; promotion """-10 -=--.nL-.Operatingprolit ~ 39

Networkir)gcepital 100 103 ""

Fixed assets '40 37

For this division, which areas ql performance would you like to investigate and what Vlouldbe the

corre"IIVO: ;:';' ;f 'I11V,ou would like to put in place?- OrAmar car company has three separate lines of cars. Line A targets the premium segment of the m!!rket,

Line B targets mid price segment while line C .targets the low end, price sensitive segment. Each 01these producllines ore sold under dillerent brand names and have Independent distribution systems.

Lines A. B. and C are produced and marketed by Divisions X. Y, and Z respectively. Some spare partsused in manufacturing of these ,three brands are common and some of these are manul.actured withinthe company, while some 01h8i'Sare procurred fromoutskle suppliers. Much scope exists for transler 01Technology and know how nom one division 10tile others. Product related Innovations usually emergehorn division X and go onto' other div'islons, .whereas process related Innovations usually originate Indivision Z and proceed on to other divisions.Management is conlemplating certain changes. Advise management how the company should beorganised and controlled if (a) The common spare parts constitule 60"1001 product Costs. 'ecap!Phecommon spare parts cOl1slitute2C% of the product costs. J.OO.§;aR

G1er1w.,9~11 '~:;:;:;-';:'' '''7 ;,:'rz, ;jivision B contracted 10buy from division A, 10000 units of a part thatil~e

final product made by division B. The transfer price lor this Internal transaction was set at As. 12 bymutual consent. This cbmprised 01material {;ost of Rs. 6 per unit, direct and variable labour cost of As.

2 per unit, fixed oyer heads 01 As. 2 per unit (Iumpsum As. 20,000) and Rs. 2 per unit as return oninvestment of As. 1,00,000 that division Awould ha'.'9 had to make for1his incremental activity. During

Ihe year, division B's actual 011take from division Awas 9800 units. Division AW<lSable to eff~ 5~QtiI .back in material consumption but had 10"10overrull on investment budgeted fo; this activlty~

[ TURN OVER

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~CROUIS947-SB-5583-01. . . 2 '\. '"'-...

. "\ \\',

Makea budget versusactual comparison statement for this activity in A's financial books an~m.

r{'(~on its significance for managementcontrol. "to1,,-,,, .--Or . ""--- ",:-::'!

Balancesheetandprofitand lossaccountof ABCLtd. is givenbelowfor year2000-01. w~'.!.1all --figuresare in Rs.lacs. '\.,

\..~..,

Balance Sheet

,.

@~.

~

liabilities

Equity and Reserves

Long Term liabilitiesCurrent liabilities

440

40~128160

20

12

'.60

200240

Asaets

Fixed assets

InvestmentsInventoriesAccounts recei"ables

Cash

Miscellaneous

'"

",\\"

,'-

Total I 800 800

Profit and Loss Ale.

Sales

Other income

Materials consumed

LabourFactory overheads

(including As. 40 lacs depreciation)Selling and administration 123Profit belore interest and taxes 1i 6.

interest on borrowing 25Income tax is

(i) What is the cash and book return on net worth?

(ii) What is the operating return on operating investment?

(iii) How is rei urn on assets related to sales ma.rgin and a~~ets turn evor ?:.:='

1120

4

426

291Hi8

;.~- \" '7..

I

,"-. "'-'

-\-

'.

~ S. '"t '."" --

12. Best and company comprises five divisions-A, B, C, D, s,:1d E and at present measures divisional per-

formanceand managerial performanceon tho basis of return on ass(~ts. However, the ~ont1'Olier has

recently suggested to the management that the company'should switch O'Jer to EVA as the criterionrather than return on assets. From tho irformation given balow, comput~ both return on assets and EVAlor eactl division and tabulate the sam~j.

./-

(All figure in. Rs. lacs)

'- Division Profits F!y.~dassets Currenl assetsA 150 400 60

B 110 200 800

C 50 300 500

D _. 55 200 400E . 90 100 -+vu

Controller suggested to use corporate finance rate of 5% lor current assets and 10% fOr fixed assets. .Or

Sterling acsociates has three divisions with varYing operating characteristics. Division M is exclusively

involved in marketing; DIVision P In production while division C is involved in bot!1 marketing andproduction activities.

Information about these divisions is tabula led below ,,!he.reinali the figures are in thousands of rupees-

-'--

'-..

Current assets

Fixed assets

Profit before depreciation. market

development, operating expenscs

. ,Oepreciation on all fixed assets is on the basis of st'Jj9ht line (10 years). Division M must spend

Rs. 3.00,000 for market development and Division C must also spend Rs. i,50.000 for the sanie pur-pose. where as 10"10 of production facilities are to be replaced in division P. Treating these as annual

uperalirtg expense::;, what are the rates of returns aChieved by each division '? Comment In det~ls.

DlvM

300Nil600

DlvP3003000

600

Div.C300

500600

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MCS University Ques. Paper 2001-2009

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