JUNE 2011 EXAMINATION
FM 02
Management Control System
Time: Three Hours
Maximum Marks: 100
Note:
1.
2.
3.
4.
The paper is divided into three sections: Section A, Section B and Section C.
There are seven questions in Section A of 10 marks each. Attempt any four.
Section B has 5 questions of 15 marks each. Attempt any three.
All the questions of Section C (Case Study) are compulsory. This section is of 15
marks.
Marks will be awarded for right procedure also in numerical questions.
Section A
Q.1 (a) What is Management Control System? Explain the boundaries of Management Control.
(5 Marks)
(b) Explain the impact of Internet on Management Control. (5 Marks)
Q. 2 (a) Write a note on Boston Consulting Group (BCG) Model on Business Unit Mission. (5
Marks)
(b) Write a note on Business Unit Competitive Advantage. (5 Marks)
Q.3 Explain the Structure in an Organization.
(10 Marks) -49
Q. 4 (a) What are the differences between Management Control of Project with Management
control of ongoing operations? (5 Marks)
(b) Explain key financial ratios. (5 Marks)-101
Q.5 Explain any two of the following
(a) EVA- Economic value added
(b) Profit Centre
(C) Return on Investment
(10 Marks)
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Q.6 Explain administration of Transfer Prices (10 Marks)
Q.7 (a) Prepare a note on strategic planning process of an organization? (5 Marks)
(b Write a note on Expanses variances. (5 Marks)
Section B
Q.8 Phoebus Services is a decentralized manufacturing company with three producing division.
Following is a schedule of sales and cost data for the accounting year just completed:
Sales
Cost of goods sold
Operating expenses
Current assets
Land held for investment
Fixed assets (Gross)
Accumulated depreciation
Current liabilities
Long term liabilities
Division A
2,25,000
1,05,000
90,000
75,000
1,80,000
90,000
15,000
22,500
Division B
90,000
37,500
30,000
30,000
1,20,000
1,50,000
15,000
22,500
-
Division C
6,00,000
3,60,000
1,50,000
1,20,000
7,50,000
5,25,000
60,000
37,500
Required: Compute the following:
(a)Net income for each division (b) ROI using gross assets, (c) ROI using net assets, (d) ROI
using gross assets employed, (e) Residual income using a target income of 15 percent of net
assets, (f) Income as a percentage of sales, (g) Prepare a chart ranking the divisions for each o
the performance measures.
(15 Marks)
Q.9 Explain Balance score card and how do we establish objectives and performance measures.
(15 Marks)
Q.10 Explain Business Unit Strategy & Control System (15 Marks)
Q.11 Explain Balancing empowerment & control (15 Marks)
Q.12 The General Manager of RAPID Group of Industries was worried about tbe ethical
violation taking place in the organization. The Controller suggested that the organization use
control system to design ethics programs. Discuss how control systems support the ethics
program. (15 Marks)
Section C
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Q.13 During the first quarter of the financial year 2005-06, about 1000 employees whose
performance was not up to the mark were asked to leave Tata Consultancy Services (TCS), the
largest IT Company in India. HR experts believed that this decision was based on the
implementation of the EVA based model for assessing employees' contributions, at the
company.
The first two year cycle of EVA had just been completed when the retrenchment decision was
taken. Those who were asked to leave had obtained low ratings in their performance appraisal
for two consecutive years, despite being under mentorship. At a time when IT manpower was
in short supply and IT and BPO companies were going out of their way to reduce employee
attrition, TCS's decision to retrench employees made headlines in several Indian news dailies.
On April 19, 2005, TCS announced its annual results for the fiscal 2004-05. The company
declared total revenues of US$ 2.24 billion and net profit of US$ 0.51 billion. TCS had been
the first Indian IT company to achieve the US$ 1 billion revenue milestone in the fiscal 200203.
It continued its success story when it became the first Indian IT company to earn revenues of
more than US S. Ramadorai CEO & Managing Director of TCS commented, "Consistent with
our position as the pioneer of the Indian IT industry, TCS is proud to be the first IT Company
to cross the two billion dollar milestone. Through our strategic initiatives we have managed to
double our revenues in the last two years. We are alive to the challenges facing the industry
and are geared to enhance our leadership position." TCS aimed at earning revenues of US$ 5
billion by 2010. The EVA compensation model was used as a basis for giving incentives to
employees and the bonus declared was a part of improved EVA achieved. In the EVA model,
the components of fixed and variable pay were determined. Fixed pay comprised of wages and
pension while the variable pay had components like bonus, profit sharing and stock options.$2
billion per annum.
Issues:
» Study the compensation management system at TCS
» Analyze EVA as a performance measurement tool
(15 Marks)
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