=

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ws April 09 147

Con. 2258-09. 88-9180

(3 Hours) [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 10 Marks.

y Explain briefly the various stages of management control process citing salient
features of each.

p:{ What is Responsibility Centre? List and explain different types of responsibility
centres with sketches.

Q.3. 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 Profit
Centers? Discuss their relative merit and demerits.
~
V 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 both
divisions is 15%. Details are given below :-

Particulars Division A(Rs.) Division B(Rs.)

Divisional Sales 40,00,000 96,00,000
Divisional Investment 20,00,000 32,00,000
.D.-fir 3,00,000 4,80,000
Analyse and comment on divisional performance of each with respect to
Operational Excellence and Marketing Effectiveness.

~.
y Enumerate the differences among following types of Audits:

a) Financial Audit (Statutory)

,.,.
b) Cost Audit
c) Efficiency Audit
d) Management Audit.

Q.7. 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
ws April 09 148

Con. 2258-88-9180-09. 2

Q.8. What do you understand by Goal Congruence? What are the infonnal factors that
influence goal congruence?

Q.9. Write short notes on any two of the following ;-

i) Zero Based Budgeting

ii) Free Cash Flow
iii) MCS in the Matrix Organization.

Q.I0. Pritam Engineering manufactures variety of metal products at many factories.

Currently, it is experienc~ng crisis. Management has, therefore, decided to install
detailed expense control system including responsibility b~dgeis for' overheacl-:
expense items at each factory. From historical data, Controller developed a
standard for each overhead expense item (relating expense to volume of activity).
Summarised expenses for, November,2005 given to concerned Production
Supervisor for comments is tabulated. All figures are in Rs. 000.

Item Standard at Budgeted at actual Actual

normal volume(l) volume(2)
Management Supervision 720 720 582 '

Indirect labour 12706 11322 12552 .

Idle time 420 361 711

Materials, Tools 3600 3096 3114
Maintenance, Scrap 14840 13909 17329
Allocated expenses 21040 21040 21218
Total per ton (Rs.) 2133.04 2103.39 2413.30
a) Explain with justification which of the "1~dards (,1) or (2) is more ~

meaningful for expense control.

b) Can the supervisor be held responsible for all overhead expenses included?
Why or why not?

~11. Anand & Company comprises of five divisions A,B,C, D and E and the present
perfonnance metric is return on assets. However, the controller has suggested
management to switch over to ecoriomic value added (EVA) as the criterion rather
than return on assets. Compute and tabulate both return on assets and EVA on the
basis of following infonnation (Rs. Lacs) and. comment on divisional
perfonnance.

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
Controller feels corporate finance rates on current assets and fixed assets should
be 5% and 10% respectively is adequate.
ws April 09 149

Con. 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 transfer
price 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; Material
cost ofRs. 60; Fixed overheads ofRs. 20 (lumpsum ofRs. 4 Lacs) and Rs. 20 per
unit as Return on Investment of Rs. 20 Lacs that Division A would require for this
additional activity. During the year, actual offtake of Division B from Division A
was 19,600 units. Division A was able to reduce material consumption by 5% but
its budgeted investment overshot by 10%.

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

Performance.
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:

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 0.98
Returnon 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
* Face value Rs. 10/-.

SE began operations 55 years ago near Pune. Initially for a number of years, it was
closely 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 additional
manufacturing 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 did
not report to JH. Two of top managers actively associated earlier became Chairman and
Vice-Chairman and others had retired.

[ TURN OVER
\\'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 involved
about 20,000 spare parts and also that in some instances, engines which were otherwise
90% 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 other
information 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 experienced
from 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 raw
materials (in the form of coffee beans) from sources located throughout the world.
All manufacturing activities including packing are carried out at three factory
locations 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 commitments
for purchase contracts for over 50 varieties. Raw material is bought in advance in
lots 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 the
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 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 and
what should be the performance metric for each responsibility centre?
**********************
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<f:MT-I -- )
Con.5093-07. (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 Question
I Nos. 10, 11, 12. Question No.1 0 carries 10 Marks and Question Nos. 11, -12 carry 15 Marks each. '

l - c-

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

iflydefine Discretionary Expense Center, Engineered Expense Center, Profit CentE

V Center? Flow is budget prepared in Discretiol1;JryFxpense Center? How is performance of the
I manager evaluated in a Discretionary Expense Center?

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

I ~~at are the objectives of Transfer Pricing? What is ideal transfer price in the situations of :-
I~/ (a) Limited Market -
I (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 ~ -matKeting
doneln 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 of
erformance Appraisal? Prepare Balance Score Card for any organization you are familiar with.
f
I-(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)
Q, (a) Free Cash Flow
-;/ (b) Management Control in Matrix Organization
(c) Zero Based Budgeting
(d) Internal Control.

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
cheap Chinesestr~tu~s
s oes andfunctional. Sin'Ce2001
also premium , profitability,-m.arket
shoes like Nike has made the share are slipping.
company think of Pressure from
organizational
restructuringanctintroducfngGomensurate Control System to regain its position. Although SSC outsources
30% 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 unusual
customer 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 own
company managers. Explain what significant changes in systems and control procedures can be
expected? Why? - [TURN OVER

,
 282 : 2ndHf-1
....
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
by 6% RS.,-4.~0.re.S whichexpenses
and re uce variable is expected to improve
to turnover ratioquality
by 2%.resulting in increased
However,8.48% turnover
increase over
in fixed current
expenses
would 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;
\/1
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) of
Explain theE~ 0 beby
parameters which Gautam-Financial
controlled to ensure~ject controller
success.may determine relative importance

J12. Suresh Ltd. has two divisions. Div. A manufactures an intermediate product for which no external
market exists. Div. B incorporates the intermediate product into final product (in the ratio of one unit
to 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 B
Variable 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 Sat yam 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 savings
of Rs. 14.5 Lacs, should Division A purchase from outside?
Justify your answers with Figures. ~
 \ 'J- L--- ,/ )-
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~.
, J:!<W:i:'f:'~,

Con. 5260-06. 88-7867

(3 Hours)" [Total Marks: 100 ,

N.S, (1). State clearly assumptions, if any made. ~ ,

(2) 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, where
applicable. i~" .

1. Explain brielly the ,likely features of an IDEAL Management Control System in OAGANISATIONS. 12

12
V What is Balance Score Card? Describe process of implementation and possible difficulties,
12
&' 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~ citing salientfeaturesof each.
12

(;> What is a responsibility centre '1 List and explain diflerenttypes of responsibility centres with ske~c~es.
12

JV (a) .Explainthe concept of Aeturn on Investment (AOI). What are its advantages? .,
6
(b) ManyexpertsregardEconomicValueAdded(EVA)as a conceptis superiorto AOI andy~t in certain 6
cases, EVA does not do justice to the evaluation of investment centres, Explain thi!.> phenomenon, with
iIIustration/s.

7. Explain various featues of Financial, Operational and Management Audit. lIIustra:te with one example. 12

B. (a) Describe the faclors which impact service organisations. 6

(b) Explain special characteristics of professional organisatiorls which would have a bearing on their control 6
systems. .

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

t.
6
6

0
"'" O.
(b)
~nniy;
givenbelow
:-
"Market Price is ideal transfer even in limited markrJts'
c1~any has twodivisions:

Particulars'
Divisional Sales
Division A (R$..>
40,00,000
- Comment.
A and 8. Aeturn c,n Investments for both divisions is ~.
.
Division 8 (Rs.)
96,00,000
,
\§
Details are 10
.

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

Clut>
Profit cPr , , , ct--i,
Analyse and comr.nenton divisional perlormar,ce.of each... \~
OA
~~cL ., ~ Ore--<
10. A Well-diversified Company -
Pritam Internalio~\alltd. sells one of its divisions to a group of its ~ company 10
managers. EXDlain what significant change:, in systems and control procedures can be expected? Why?

11. Two divisions 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 inflation
and added th~t over- "!:Icompany profitability willreduce and the decision will lead to exCess, capacity In Division
B, whose varlabl..) and fixed costs per unit are respectively As. ,~and As. 1100. ' "
5
(a) ~S' 6u.ming thai no alternate use exists for excess capacity in Division B, will com\?anv as a whole
\ .Je~\efitif DivisionA buysfrom the market. .
(t>J I;, the market price reduces by A~.BOper unit. What would be the effect on the company (assummg
5
Division B stillhas excess capacity) if A buys from market.
I ) If excess capacity of Division B could be used for alternative sales at yearly cost savings of
~ 5
(P.~'..,t-~"', \W As. 14.5 lacs, should Division A purchase from outside?
;.--~~~ :. Justify your answers with FIGUAES.
OR ~2
l' I. Girish Engineering is organised on profit centre basis. Division X has an offer from market to supply 5000 t5"
units 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 at
4C5
As. 4 lacs and an yearly investment of As. 2.4 cr. Competitive rate of 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 ~ are
As. 290 andnormalprofit marginis As.60 per unit. .
5
(1) On the basis of costing, will the manager of division X be interested in accepting the market offer?
5
(2) Is this offer beneficial to the company as a whole? Justify with figures.
(3) If yes, how should the company organise its transfer pricing mechanism?
Illustrate. 5
[TURN OVER
\
1011mk , E'2na06,

Con. 5260-BB-7867-06. 2

12. Shivangi Company's controller uses Economic Value Added (EVA) method to measure divisional profit
performance of its three divisions - X, Y and Z. Company charges to divisions 5% for Current Assets and
10% for fixed assets while computing EVA. Information on performance is given below ;-
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 7eO
Fixed Assets. 800 800 800 900': 1000 1100
'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. 5
(2) Tabulate budgeted and actual economic value added for each division. 5
(3) Comment on the two methods based on tabulations. 5 .
. . OR
12. Ananaya & Company comprises of five divisions A, 8, C, D and E and the present performance metric Is 15
return on assets. Howev!!r,the controller has suggested management to switch over to economic value added
(EVA) as the crit.erion mther than return on assets. Compute and tabulate both return 'on assets and EVA
on the basis of following information (Rs. lacs) and comment on divisional performance.
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
Controller feels corporate finance rates on current assets and fixed assets should be 5% and 10% respe~ively
is adequate.

-..
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(

:'1:n. 5430-05. (FURTHER REVISEDCOURSE) &8-8142

(3 Hours) [Total Marke: 100

N.B. :(1)' state clearly assumptions, II any, made.
(2) Atter11Ittolallyelght questions, IU'¥fIve fltJl)'l Clueslbn Nos. 1 to9 (eechcan1es 12 marks) and Oues1IonNos. 10, 11 and 12.
, Question10 carries
10 marks and QuesllonNos.11 to12 carry15 marks each.(Marksareshown under
, each sub-questlonalsowhere applicable).
, .'

~ISCUS8 andUiustrate difference and simllaritesbetween- 12

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

y piscuss conceptollree cash flow and describe p,rocess 01Its computation. 12

~ significance
Describe and Illustrate of human behaviour patterns In Management Control. '
12

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

problems faced Inpricingrorporate services provIdedto Business Units organlsed as p~fIt centres.
.
6
6,

5. ~ Describe Inherent difficultiescreation of Profit Centres may ceuse and advantages possible? .Jill" 6
J1') Under which situations creation of profit centresIsNOT advisable 7 .' WfIIII'" 6

management control practices, Iffollowed,Inperformance measurement of Investment Centres are likely

f
~ 6' WhiCh
'.- InduceGoalCongruence,inrespect offollowingassets:-
( . (a) (I) Idle (iI) ~ntangible (iii) Leased.' tMh..t"" 6
"': .. (b) (I) Cash (if) Aeceivables (Iii) Inventories. 6
."..
'"
7. ...(a)' Explain possible reasons for failure of Balanced Score Card? < 6
¥ Discuss special ~ha~lenges faced In controlling A and D activities and possiblemanagement ,6
Inltl:!:tlves.

8. ~ ('Whatare advantages in conducting Internal Audit? 6

y<"lIustrate differencebetween Financialand Management auditwith an example. ~ 6 i
;,
9. ~Ij).explainsome factors_~~lchmay inftuence
Top Management styleand the Implications
ofTop Management, .A-:.-
styleon-ManagefTIent~ntrol,_- -1--- '. "'- -., _.n, . .-.,-'" ,- ~ :.
6
.{\1)"ExpraTnaaVintage~ and disadvantages of two step transfer pricing and profitsharing methods. (
10. PritamEngineeringmanufacturesvarietyof metal productsat manyfactories.Currently, ItIs eocpeliencelng, crisis. l
M~nageinent has, therefore, decided to Install detailed expense control system Includirigresponslbillty
budgets for overhead expense items at each factory. From historical data, Controllerdeveloped a standard
foresch overhead expense'item (relatingexpense to volume of activity). ~mmarised expenses for November, 2005
givento concerned ProductionSupervisor forcommentsIs tabulated. All figures are InAs.000.
r"""/ nem
-
. Standardatno1
volume (1) .
Budgeted at actual
volUile (2)
. Actual

...
".
ManagementSupervision
Indirect
Idle time
labour
720
12706
420
70 -
11322
361
- 582 r
12552
711
Materials,
Tools 3600 3096 3114
. Malntenance,sCrap 14840 13909 17329
I~\~\' Allocated expenses 21040 21040 21218
Total per ton (Rs.) 2133.04 2103.39 2413.30

(a) f:xplainwith justification which of the two stand8rds (1)or (2) Is more meaningful for expe '01. 5,
,tf 5
{b) Canthe supervisorbe held resjx)Osibieforall overhead expenses Included? Whylwtr{ not ?
1'1.\.\ . ,Or" . , l'
1O. Identify'and explain Indetail what significant changes Inmaoagement control system and control proceduree 10
you'would expect to see InAnanya International-asmalldiversified
company afterItIsbought 'Outby a group

of company managers. . "Ir.J)'

11, KalyaniEnterprises(KE) Isa medium sized company 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 auality res~,lIting

1!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 result and net ~rklng capital
would Increase by As 1.8 Cr'over current level. 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; assets As.51 Cr. Borrowinu~ .
Fixed
Rs36 Cr; EquityAs. b1 Cr. Return ismeaSUred prelOtereStana taxes on {japltalemployed. '

(a) WhatIst~'tt return onequityand cepitalemployed ? 5

(b)' Compare these .f~:.Iresto respective 'figures post Installation. 5
(c) Explainthe proC8fs bywhich Girish-Flnanclal controller may detrmine relative importance of parameters 5 ~
to be controlledto ansureprojectsuccess. M"\ '

Or \::2.1
rTURN OVER
 '"
Con.5430-8B.8142-05 2

11. ATV dealership, Veena Television (VT) Is organised Into four profit centres-Colour TV sales (CTV); Black and 15
White (BW)TV sales (BTV). Spare Parts (SP) ; and SerVicing (SGHach headed by a manager. BTV, In
addition to BWTV sales, also sells old TVs exchanged (under scherne) by Cl.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. Shlvangl
Manager ofBT\I,examined the oldTV(Wlued at As. 3500 byTVtrade magazines) and felt that she could get As. 5000
for that TV after 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 commission of Rs. 250 per TV sold. Overhead fbted allocations 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 basis
and ,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 into four quarters and at the beginning 01~~h quater,
performance of previous quarter is reviewed and budget for following quarter may be revised in consUltatlOl)WIthGM.
Data for div P Is as under. Figures In Rs. crores.

Budget- Actual
Quarter 1 Quarter 2' Quater 1
)'
,"
Acountreceivable 8 7.5 8.50
Cash 4 4 2.0
Inventory 18 ' 16.5 21.50 '/
Fixed 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
'- --, SaI8$. O 36 34

(8) Reviewthefirsfquater'perforrnaneeon the oasIs~c!ompU1atl~n of various parameters. 10 ..,

(b) Would you suggest any revisions for the second quarter budget 7. Whylwhy not. Justify. 5
Or ..
12. ~ Qlosely held small sized company-8hayna Ud.-Is Involved In selling Its own brand of coffee In Central and 15
/NO!1hern Indi~. Fierce Competition is experienced from large players ~Ike Nestle' 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) from
sources located throughout the World. All manufacturing activities Including packing are carried out at three
,) factory locations Qach headed bya v.P. Each factory Is ~,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 world market trends, . making commitments
for purchase contracts for over 50 varlaties. Raw material Is bought In advance In lots for delivery to Factory at
various dates according to sales forecast. Whenever actual requirement Is different than the forecast level.
difference In raw materialsupply Is made up by purchasing department by sale/purchase of raw material In the
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 departmental
expense (3%of sales) Is directlychargedto headoffice. '.

!:low should manufacturing, marketing and purchasing be reorganlsed as re8ponslblllty centres to Induce goal
congMnce withinthe organisation and what should be ~e performance metric for each responslbUitycentre ?

,,' j
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I ,~:;:=~~H'04' (REVISED" FUFnrHERREVISED~OURSE) B8-8810
/
,

.
~
'
(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) and
Question Nos. 11,12; 't3.. QUestlen'Ne.,11 carries .14J.:-marks'.
Question Nos. 12 and 13 carry 15

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

'2. What is the concepto( free caSh' flow as'appl18d tC:i:an -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) Impact of Top MlmagementSty)e on Mat\agertl'nt Controls ' .J

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

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

,~ "

t\ 0 (a)
(b) "Transfer Pricing
Market'price is not
is ideal an AccountingToar;
transfer' com~ent withlllus'tratlon~.
price even In LimitedMamets. Comment.' :,':
rc 6. Explainand illustratewithone exampl6the'dlfferences between three forms of InternalAudit-Financial,
.,' Operationaland Management. " , ','" " ' ,

1\ L. ' ,

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

disagreewhethera SINGLEmeasureto evalu'ateprofit performanceawl

8. MCSdesignersapPar.ently
Car>itallnveatrnent
~ormance Is preferrable or SEPARATE measures for,each arepreferrable-:- Comment.
Q/\yhat are the different methods to,measure profits of a profit centre In O{gal'!lsa,tlong? .Wpich diH~rent
/ messages _:type of measure Is Hkely.to convey to managers,? ~
)0..(b)(a) Whet
Explain special chatab(~r\$ticS of profess!°na/ °'Jl~f!isa~!ol'!' wtii~'IIDf.'ctMltna9!9mentGootroL---
are interadtlve comrols l' ~'.t't'~I~ ' ~~ .&qj(~~-.
, "',; "",' IC ..",,".', ,

11. Aesponsibility budgeting was Introduced In a medlu'!1sized organisation Glrish Engineering. Monthly
report (In part) f,oran expense centreJn factory Is: '

, 'All Flgurel In RI. lacs

Actuaf 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 includedin ControlableCosts? Why? Whynot ?
5
~ , ' ' ,
[
11. V~na Pvt. Ltd.,a smallmultiproductCompanyis taken over by a multinationalCompany(e,g. Hindustan 10 )
Lever). Whatchanges in thecontrolsystemwouldyouexpectand wh)'?
'~,
12, Budget versus Actual Comparison for dlv Z of KlrBnCompany Is as follows:
All Flgur.. In R8. lece
Budget Actual
Sales and other Income 800 740 !,
Variableexpenses' 480 436 i
I Fixed expenses 120 120 !
r
Sales promotionalexpenses 40, 28
r Operating Profit 160 156 !
Net Working Capital 412 400
Fixed assets' ,148 160"
I (a) Carry out an overall performance analysis to decide areas needing inyestiga,tlon. 'S
I 7 \
(b) What remedial measures, " any,-wouldyou sugge$t based on the analysis 7

t Or
\2.. Division B of Shayna Company contracted to buy from DIY. A, 20,000 units of a co'~ponent which
goes into the final product made byDIv. B. The transfer price for this internal transaction waz!fd at \
Rs. 120 per unit by mutual agreement. This comprises of (per unit) Direct and Variable labour co~i:of (
i
As. 20; Material Cost of As. 60; Fixed overheads GIfRs. 20 (Iumpsum Rs. 4 lacs) and Rs. 20 per unit I
as Return on Inves~ent of As. 20 lacs that Diy. would require for this additional activity. During ~
(!) \' [ TURN OVER
 '.

'5 '~, ".

'1\
3e'-C:\F>"5\D-fNDH'D.N~..
'I'
CROUl44~BB"'0-04. 2

the year, actual off take of Dlv.B from Dlv.A was 19;600 unlt~. Div.A was able to reduce material
consumption by 5% but its budgeted Investment overshot bY10%. >. . ~\
. (a) As,Financlal Control~r of Div. A, compare Actual Vs Budgeted Performance. ' 12
(b) Its imclicat/onsfbt Management Control ? 3
13. DI:.'isionof.Aparna Companymanufactures Product A, which Issold to another divisionas a component
of its product B; which then is sold to third division to be used as part of its Produ~ C (sold to
outside 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 Product C'" c,..
) " '

.Purchase of outside material, (Rs.) 40 00 20

Direct Labour (Rs.) 20 :20. 40
Variable 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.tranSferprices for'ProtluctsA,B and Standard ~8t of Product C. -'0
'(b) Product C could b~come U!'ICompetitiveslnce.upstreammargins areadd$.~: Comment, 5
.-'
Or "lii~'
13. DivisionsM. P and ~,of ~anya lid. are respeotjyelyengaged In activitiesof Mal1<eting;Manufacturlng;
~1
Both, Control is through Aeturn on Investment FI)(edassets are depreciated on straight line basis.
(10 years). Performance is : . ! ::. . "1-"

. Fivureein Re.l.cl (

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

.Profitbefore depreciation and operating expo . . 400 400 ',400
Current assets .c' ;: 200 200 200 .
Fixed a$sets' ' 'nil, 1,000 500
Operating expensesforDMsions M, P and C are respectively (all in Rs. lacs) :'2ooj 100; 15q.
(a) Compare AOIfor each division. ' ',. '
8
' ~-~) AMIyee end comment 00 rel8tionshlp,lf-any, ,between ROI achjeve4-aod $e dMsioI'Ialactivities. 7
",
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KK.7712

,. . (3Hours) [ TO~IM.rk~ 00
'N.B.(1) State cle.rlv assumptions, Ifany, made.
-
(2) AUempttotally eight questions any five from Queatlon N~f 1 to 9 (each carrles12 m.rka) and
Question Nos. 10,11 and 12. Question No. 10 carrie. 10 marks and Question No.. 11 and 12 carry
15 mark. .ach. (Marksare shown under each .ubquestlon.)

~ ,
What are the objectivesof Transferprtce.? Underwhichcondition..a Transferprtclngmechanism
Is likelyto induce Goal congruence? .' ,
12

~ Explainadvantages and disadvantages of two step pricing and profitsharing methods.

V""~
2. ~short notes(anytwo);- .
Strategy formulationand task conlrol . -----
12

.~ Use of ProfitCentre Concept in a non-prolltorganisation

(c) Matrixstructures and controls ,. I

(d) Free cash flow.

3. (a) What are the pitfallsof Balanced Scorecard? . 12

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

~
.

I
12
i
.1.
~ Define EconomicValue Added (EVA). Discuss
measure. ,
Its. suitabilityas Investmentcentre. performance

J .JbY' Explainfunctioningof a standard control system withsketches. .

,J'
5. (a) Identifyobjectives of Organlsatlonal InternalConlrols. 12
(b) 'nsplte of not beinga statutoryrequirement,manyQrganlsatlonshave Startedusing lIJI:\mjHIntemal
auditing." Comment.
r 6. Organisations with DlvislonallBuslness Unit Organlsational format, have observed that DMslonaJcontrollerS' . 12
~experlence divided loyaltyin carrying out their functions. causlng'posslble control difficulties. How
could such a situation be resolved? Define role.ofcorporale controllerwhich suits your sugges!lon.
12
,.~ Expliilnbrieflythe va~ous stages of orga!:'lsatlonalmanagement process citingthe Crltlcali: of each.
8. "For an.engineered (standard) expense centre. zero based budget Is not necessarY" Comment In 12
details. '. .
-
".
9. 12

~
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 profit centre decentrallsed company. ExplaIn two major advantages and disadvantages
of each.' .,. .

. 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-hlahmarkat share for ita diverse range of ~~~ .
. Olld prnfih<sa marke~pmducts throuQh colllDany ownedsho~ andItsownpersoMer..
stl'lK1.tureIs functlon~. Since 2001. profitability. market share are sipping. Preiill'lIII hUl!l ~
Oij)8nlsatlon
Chlnesa
~ awopremh.rn ,.."., I" !\Jilt..h made the companythrnkof organlsational restructuring
anij Introducing om' rate ControlSystem to regain Its posItion. AlthoughSSC outsources.~O%
of products. It Is seen as a ro uc Ion or n company. SSC wants to adopt measures to reduce
.msts. strenafhen marketingand be In a positionto produce.!...ndmeet'unexpectedand unusual customer
demands. .'

Howshould the company reorganlse to achieve Goal congruence? Define performance metric.
---
. OR
10. sse (mentionedabove)has decidedto Implementa delalladBalancedScorecard. Helpthe Management .10
In this task.

11. Selected.hlstoricaldata of ShlvanglEngines(SE), a Companymanuf~rlng diesel engines and catering

to T-rucksand Agriculturalmarkets Is tabulated below:
Veer 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 .0.98
Aetum on equity (%) - 14.7 13.9 10-8
Numberof plants 2 8 13 14
Total productionarea (sq.ft. - 00) 1496 2224 2833 3340
Marketshare 61.1% 43.5% 37.9% 40.1%
Enginesproduced (000) 10 44.5 57.5 63 [ TURINOVER
- Face value Rs. 10/-.

-.. - '-.
' ' ..- --- ..
information for evaluation. 'Ass~mrnglfiaf any lunr.ler IIIIUIIlIa"VII'"\i''W''''''' ~----
'-Qr6perJustification),assist the/tnanager in his task of evaluation.
\ . ~ [TURN OVER
;-. ;. \j)
 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 formal
authority over all operstional malters. Financial Controller did not report to JH. Two of top managers
activelyassociatedearlier became Chalrm,anand Vice-Chairman and others had retired. ,

Towards end 1994, JH anticipated sharp recession but continued Inflation.

He, therefore, viewed
company'sInventorylevel (approaching90 days stock)with concem. Also, there was a major dlSCf'Elp8ncv
between inventory records of materials and finance departments-equlvalent tQ inventory 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, 10
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 5
manager) such a problem affecting management control occured ?
. Or ,

11. Figures in As. Cr. (for 2001) for Sonali Company (SC) are tabulated below:
Income statement Balance Sheet ' '
V Sales 225 Debt . 36 l~ <!I
Variable expenses 150 Equity 51
Fixed expenses 49.5 Fixed assets 51 SH- L1.S~~
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 sales
proportion 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? 5
(2) Compare these ligures to respective figures post installation. 5
(3) - ~'5P~k' the p~ by .wPlcI1flnanciaLControu&r.may .Qatennlne relative Importance 01 parameters 5
,- to be controlled to ensure project success. '

12. An~ya Ltd. has two divisions. Div. A manufactures an Intermediate product lor' which no external
rket 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 prices
Is 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. 10
. (I) - State the selling price which maxlmises profits lor Dlv. B and company 88 a whole. Comment 5
on 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 600/0 capacity utilisation,

~~, ('\
V r ~s.
raw materialcost Increasesby 2% and sellingprice falls by 2%. At 80% ~acity
material costs Increase by 5% anc;iselling prices fall by 5%. At 50% working the product Cdsts
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);
utilisation,raw

overhead-
Administrative
-
Rs.20
/' (50% fixed). ~~,,/q)
,(a) Estimate profits at all three levels 01~ ulillsation. 10
(b) Commentin ~ on implicationsfor Management
ControlsIn differentfunctions. 5
 ,.
,
-..'
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. ;,.-

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L . .:' 5-02.
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N.B.: (1) State clearly assumptions, if any, made.

j
VI
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C -::-<-
S ~()

(3 Hours)
<r
(2) Attempt total!x..elaht Questions- anyJlye from question nos. 1 to 9 (each carries 12 marks),.and
question nos. HI, 11 and 12. Question No. 10 carries 10 marf(s and question nos. 11 ar\d 12
carry 15 marks each. .
£~~ B8.5682

[Total Marks: 100

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) Explain the problems faced In pricing 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-Profit Organlsations.
~

.~ ~
(b)
Explain the concElptof Retu~n on Investment (ROI). What are its advantages?
Experts regard Economic value added (EV~) as a concept superior to ROI and yet, in certain
/ cases, 5YA.does not do justice to the evaluation of Investment centres. Explainthis phenomenon
with illustrations, if)1eCessary. .

! r n. ..,.explain the concept of Goai congruence arid the various factors which Influence the goal congruence
. '/ withinthe organisation. . ~

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

9. Investment Base used in performancE>evaluation 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.
. .
'. . ; -.
10
" Usha Products Ltd. has three divislons- Professional Services~ Consumer Products (CP) and
1)l:.
Industrial 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 oldest of the three. It is 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
. evaluation is Return on Investment (ROI). There has ceen a general discontent among managers
,that thQ..B0101 CP division is highest among all divisions because of the older assets employed
,)n the CP divlslO!l.Managementhas decidedto Implementa detailed Balance Score'card Inltiallv
.- for CP division. Assist the Management in this task. '

'. ~ .\ .

10. Year end informationabout twoeXDense cAntcas in an organisatlon..provlcti".;'.rvlces 1$tabulated 10

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

/ Centre
0A
Budget
13,30,893
Actual
13,85,154
Over Budget
54,261
Under
- BUd9~t. ,!>e 5.
'Y-""'....
B 11,76,302 11,30,073 - 46,229 :L-. r
Mf

Total 25,07,195 25,15,227

Number of Personnel
A 46 46
,..
B 26 24 2
Manager to whom the heads of these two centres report Is not clear on how to use the.avallatlt
information 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
@
 ~
. CROU/4055-BB.~682.02. .' 2 . . . . .~ .
1 . Management.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 partly frIe' resDonslblUtvof the maintenance departmQnt which Incurs costs when It carries
out 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 costs
can 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 of volume of activityInthat department
or section.
jv'ethod
. 3: Charge
for eacheach
hourdepartment or section people
that tM maintenance for the work
maintenance work at a prescribed or
in that particulardepartment hourlyrate
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 supervisors
should view their responsibility for maintenance? State and explain your logic.
. Or'
Document Processing is the activity in which DlvDP of an organisation is involved. This Is the major 15 .
activity of the organisation, which It, In fact, eered. However, between 1990 to 2000, market ..
share of document products fell drasticall b 0 Comcetitive products were being offered almost
at 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 information tabulate"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.)
2001 -
2000

Division DP , . QiaD
17.83
13.58
17.97 . -"
Thtal Company
Net Profit (Rs. Cr.)
.'
Division DP 0.54 0.55 \
Total Compnay 0.45 0.24
Financial Position (Total Company) . -,. .

~
Current Assets (Rs. Cr.)
Total Ass~ts (Rs. Cr.)
-~.
~r"
21.77
31.64
.--~_.,

(Long Term Debt: (Rs. Cr.) . 7.15

'shareholders Equity (Rs. Cr.) 5.14 5.06-
Earning per share (As.) 3.86 1.66 " .
Dividend per share (Rs.)' 3.0 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 'fl
unit in the market. Income statement for. both divisions and the company is as under ;-
Dlv M Dlv N Omega Co.
(Rs. lacs) (Rs. lacs) (Rs. lacs)
Sales
50,000 units @Rs. 20/unit 10 - 10
20,000 units @Rs. 40/unit - 8 8
- - -
Total 10 8 18
, Expenses
V.ar/abfe
50,000 units @Rs. 10/unit 5 - 5
20,000 units @Rs. 30/unlt - 6 6
Fixed Expenses 3 1 4
Total Expenses (8) (7) (15)
- - -
Gross Income 2 1 3

Div M may be in a position to create an additional capacity of 20,000 units at no additlc,na; flxsd
expenses. However,it can only continue to sell 50,000 units in the market. .'
(a) What should be done by the Companyas a whole? iJustify with figures.
(b) What would be the approach of Managers of Divisions M a'ad N towards the possible capacity
increase? What should it be? Why.? I .
(c) If you recommend interunit sale, whatl would be the re<:o~mended price? Why?'
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15,
111-: performance for Its three, divisions - J. K & L. Company
~;:" Shweta Enterprises used Economic value added (EVA) method for measuring divisional profit
,'.
7 is 5% while for fixed assets it Is 10% In EVA computation. Info.rmaflon
charge to divisions for current assets
is given below (In As. Crs.)
on their performacne :-
Dlv J Dlv K Dlv L
B* AU B* AU B* A**
Profit 90 80 55 60 50 50
Current assets 100 90 200 190. 300 350
Fixed assets 400 400 400 ,450 500 550
*Budgeted
.. Actual
on the. basis of information given ;-
(a) What are the budgeted and 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 15
division 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 rule
that when products/components are transferred from one division to another. standard cost plus a
10 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 performanceappraisal of divisions) on the basiS:) of following Informatlon-:-
~;' 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 /'

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\. ." . ' , 89-5583
(FURTHERREVISEDCOURSE)-, . '

(3 Hours) ( ,/) ECI./~Jy~ T~t~~Ma~,k~,:100

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N,B. (1) Slate clearty any assumptions made. . - .~ :._""":'-~'~
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:2) Attempttotallyeight questions-any 1IveIromquostion Nos.1 to 9 (It.a<:hiarrles;2 marks) and ---
questions 10, 11 and 12. Question No. 10 carries 10 marks and questlo~ Nos. 11 and 12 carry 15
marks each.

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

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

3. (a) Explain hONdillerenttypes 01expense ce~tres operate with help 01 skelches.

(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 the
most 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.
6. Explain with iI!\lstrations the different ways in which the profit objective of a profit centre can be stated'
'- and conirolled. What role do corporate over head allocations play Ih this process? .

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

F (b) How can Balanced Score Card be Implemented in an organisation?
r., .,.
~ 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 their
management conlrol systems? ". . .' -. - .

10. The Budget Vs Actual comparlsOftlor Division ABC of Company X at the end of hali, yoar M.llast
lollows ;- ... to ~ t...

Sales
Material and other VariablfJ costs
'l"P'- tiff"
Budget
200
,120 \ II
(All figures In Rs: ~ac:~).. .(.!
Actual
185
109 ,
. ~I)-o
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. ' 9i$'"
t. ...:..
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.
Employe~ and other fixed expen~es
Sale;; promotion """-10
30 - -=--.nL-.
30' .
_I'" Operatingprolit ~ 39
Net workir)gcepital 100 103 ""
Fixed assets '40 37
For this division, which areas ql performance would you like to investigate and what Vlould be the
corre"IIVO: ;:';' ;f 'I11V,you would like to put in place?
4)'!' - Or
('I , Amar 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 01
these 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 parts
used in manufacturing of these ,three brands are common and some of these are manul.actured within
the company, while some 01h8i'Sare procurred from outskle suppliers. Much scope exists for transler 01
Technology and know how nom one division 10tile others. Product related Innovations usually emerge
horn division X and go onto' other div'islons, .whereas process related Innovations usually originate In
division Z and proceed on to other divisions.
Management is conlemplating certain changes. Advise management how the company should be
organised and controlled if (a) The common spare parts constitule 60"1001 product Costs. 'ecap!Phe
common spare parts cOl1slitute2C% of the product costs. J.OO.§;.aR
G1er1w.,9~
11 '~:;:;:;-';:'''''7 ;,:'rz, ;jivision B contracted 10 buy 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 by
mutual 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 on
investment of As. 1,00,000 that division A would ha'.'9 had to make for1his incremental activity. During
Ihe year, division B's actual 011take from division A was 9800 units. Division A W<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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-una JO'\Jr; 1:qUIIyl'rS:;rT\:;t.-RefUfnls
measured prel/lteresiana taxes on l;apltal employed. .
(8) WhatIsth~'1t returnon equityand capitalemployed?
(b) Comparethese.fi~:Jresto respective'figurespost installation. 5
5
(c) Explainthe proceEs bywhichGirish-FinanclalcontrollermaydetrmlnerelativeImportanceofparameters 5
to be controi/edtoansure projectsuccess. C) .
Or ~/
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CROUIS947-SB-5583-01. . . 2 '\. '"'-...
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Make a budget versus actual comparison statement for this activity in A's financial books an~m
on its significance for management control.
Or
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Balancesheetand profitand lossaccountof ABC Ltd. is givenbelowfor year2000-01. w~'.!.1all --
figuresare in Rs.lacs. '\.,
@~. Balance Sheet \.
.~.
.,
~ liabilities
Equity and Reserves
Long Term liabilities
Current liabilities
360
200
240
Asaets
Fixed assets
Investments
Inventories
440
40~
128
'"
'.
"
,\
Accounts recei"ables
Cash
160
20
\
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Miscellaneous 12
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Total I 800 800

Profit and Loss Ale.

Sales 1120
Other income 4
Materials consumed 426
;.~
Labour 291 - \
Factory overheads Hi8 "I '7..
(including As. 40 lacs depreciation)
Selling and administration 123 ,"-. "'-'
Profit belore interest and taxes 1i 6.
-\-
interest on borrowing 25
Income 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 ?
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12. Best and company comprises five divisions-A, B, C, D, s,:1d E and at present measures divisional per-
formanceand managerial performance on 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 criterion
rather than return on assets. From tho irformation given balow, comput~ both return on assets and EVA
lor eactl division and tabulate the sam~j.
(All figure in. Rs. lacs)

'- Division Profits F!y.~dassets Currenl assets -'--

A 150 400 60
B 110 200 800 '-
C 50 300 500
..
D
E
_.

. 55
90
200
100
400
-+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 and
production activities.
Information about these divisions is tabula led below ,,!he.rein ali the figures are in thousands of rupees-

DlvM DlvP Div.C

Current assets 300 300 300
Fixed assets Nil 3000 500
Profit before depreciation. market 600 600 600
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.

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