MS-43 Management Control Systems

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ASSIGNMENT

Course Code	MS-43
Course Title	Management Control Systems
Assignment No.	43/SEM-I/2015
Assignment Coverage	All Blocks

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

Question.1. Discuss the interlinkages between some of the new management techniques such as TQM, JIT and Activity Based Costing, with the conceptual foundations of Management Control Systems.

Answer:Management Control: we will acquaint you with various conceptual foundations and framework of Management Control Systems (MCS). The main focus of this unit is on the nature and purpose of management control systems, elements of management control systems, interlinkages between strategic the inking, management control and operational controls. During the recent years, a number of new management techniques have emerged. These include Total Quality Management (TQM), Activity Based Costing (ABC), Enterprise Resource Planning (ERP), Total Knowledge Management (TKM), etc. In this unit we provide a brief outline on linkages of these management techniques with Management Control Systems. We close this unit by highlighting the implications of ethical dimension in signing and operating

Question.2. Select any Organization of your choice and study in detail whether Responsibility Centers are essential for that Organization or not? If you think the Responsibility Centers are essential describe how the Organization should go about it.

Answer:Performance assessment is crucial to management of any companies who wants to make sure that its operation is under control. To be able to go into deeper and more details assessment, they would need to view the company in segments—divided into several unit of operations, in the form of responsibility centers.

Using financial and non-financial control system, each center is assessed to get insight how’s each unit (responsibility center) of the company going, or why plans were not achieved—in a worst case, and make the appropriate adjustment. Based on the result of the assessment, they then are able to take necessary decision for their operation going forward (in short or long-run.)

Financial control summarizes the financial results of operation (in each responsibility center) and compares them to planned results. When companies (or organizations) use a single index to provide a broad assessment of operations, they frequently use a financial number, such as revenue, cost, profit, or return on investment. That is why each responsibility center is called “revenue/cost/profit/investment center”. By

Question.3. A Fertilizer company has given the following budget expense for the production of 10,000 bags of a particular product.

	Per unit
Direct materials	Rs. 60
Direct labour	30
Variable overheads	25
Fixed overheads (Rs. 1,50,000)	15
Variable expenses (direct)	05
Selling expenses (10% fixed)	15
Administrative expenses (Rs. 50,000 rigid for all levels of production)	05
Distribution expenses (20% fixed)	05
Total cost of sale per unit	160

Prepare a budget for production of 6,000; 7,000 and 8,000 bags, showing distinctly marginal cost and total cost.

Answer:

Question.4. Explain as to how a service organization is different from that of a manufacturing organization? Do these differences affect the control system design of these organization? If yes how.

Answer:There are five main differences between service and manufacturing organizations: the tangibility of their output; production on demand or for inventory; customer-specific production; labor-intensive or automated operations; and the need for a physical production location. However, in practice, service and manufacturing organizations share many characteristics. Many manufacturers offer their own service operations and both require skilled people to create a profitable business.

Goods: The key difference between service firms and manufacturers is the tangibility of their output. The output of a service firm, such as consultancy, training or maintenance, for example, is intangible. Manufacturers produce physical goods that customers can

Question.5. Study the Brooke Bond (India) Ltd case given in Block – 5 and answer the questions given at the end of the case.

Answer: Questions

Question.1. What triggered the introduction of profit centre system in BBI? Was the adoption of the profit centre structure, in your view, at the right time? Should the BBI have waited for some more years so that its recent diverse activities attained a level of maturity before introducing the concept of profit centres.

Answer:Brooke Bond (India) Limited (BB1 ), a FERA company in the Unilever fold, has come a long way since it began operations in India way back in 1912. The 77 -year-old company was incorporated in Calcutta under the name of Brooke Bond & Company (India) Limited with the twin objectives of introducing packaged quality teas to the Indian consumer and also of exporting bulk teas. The early products lines included Black Label, Violet Label, Green Label, Red Label and the popular Kora Dust,

Brooke Bond (India) Ltd. has been described as the world's largest tea marketing company by its executives. The company saw a period of growth and expansion during 1927-67 and it introduced new products, including coffee in conventional powder form. The company's main products are tea, coffee and instant coffee. Tea accounts for well over 70% of the company's sales and profits. Apart from tea and coffee which together accounted for an estimated 95% of the pre-tax profits of the company for the year 1981-82, Brooke Bond managers are trying their best to establish other lines of business - meat and leather exports, paper,

Question.2. What are your comments on the practices and procedures regarding:

i) determination of profitability and RO1 of Profit (or Investment) Centres, and

Answer:In a competitive marketplace, a business owner must learn to achieve a satisfactory level of profitability. Increasing profitability involves determining which areas of a financial strategy are working and which ones need improvement. Understanding the key factors determining profitability assists managers in developing an effective profitability strategy for their company.

Sales: Sales are an important factor in determining profitability. The return on sales ratio measures profits after taxes based upon the current year's sales. If sales numbers are high, a company is better prepared to handle adverse market conditions and economic downtrends. The gross profit margin is a measure of gross profit earned on sales. An effective sales strategy is essential in increasing a company's profitability.

Pricing: Price setting is a key factor in determining profit.

The Finance Director of BBI thinks that the financial health of the company is excellent. According to him "one important yardstick of gauging corporate performance is to take a look at a company's post-tax return on net worth. It denotes the money for distribution to shareholders and available to the company for re-investment. The company

ii) measuring of the performance of Profit Centres.

Answer:Return on investment is a valid technique for measuring past profitability. In fact, it is the only technique that allows a company to compare profitability among organizations or investments. But it is not a valid way to set future objectives, because the historical costs of assets—on which it is based—are meaningless in planning future action. Regardless of how much a company pays for a group of assets or what amount of differential cash flow it projects in investment proposals, the only logical thing its managers can do—once the assets are in place—is to use the assets to maximize future cash flow and to invest in new assets when the return from these assets is expected to equal or exceed the company’s cost of capital. The

Question.3. Evaluate the strategy of the company and its recent diversifications.

Answer:Diversification is a corporate strategy to enter into a new market or industry which the business is not currently in, whilst also creating a new product for that new market. This is most risky section of the Ansoff Matrix, as the business has no experience in the new market and does not know if the product is going to be successful.

Diversification is part of the four main growth strategies defined by Igor Ansoff's Product/Market matrix:

Question.4. Do you share the optimism of the Chairman of the Company?

Answer:Brooke Bond & Company was founded by Arthur Brooke who was born at 6 George Street, Ashton-under-Lyne, Lancashire, England in 1845. He opened his first tea shop in 1869 at 23 Market Street, Manchester. Arthur Brooke chose the name because it was his 'bond' to customers to provide a quality tea, hence Brooke Bond. The firm expanded into wholesale tea sales in the 1870s.

In 1903, Brooke Bond launched Red Label in India.

The company opened a packing factory in Goulston Street, Stepney, London in 1911.

Brooke Bond's most famous brand is PG Tips, launched in 1930. By 1957, Brooke Bond was probably the largest tea company in the world, with one third

Question.5. What are some apparent strengths and weaknesses of BBI? Comment on the -

i) Direct Selling System of the Company (should it be changed in favour of distribution through intermediaries?); and

Answer:Direct selling is the marketing and selling of products directly to consumers away from a fixed retail location. Peddling is the oldest form of direct selling. Modern direct selling includes sales made through the party plan, one-on-one demonstrations, and other personal contact arrangements as well as internet sales.[2] A textbook definition is: "The direct personal presentation, demonstration, and sale of products and services to consumers, usually in their homes or at their jobs."

Industry representative, the World Federation of Direct Selling Associations (WFDSA), reports that its 59 regional member associations accounted for more than US$114 billion in retail sales in 2007, through the activities of more than 62 million

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