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Posted By: SRIMATHI Member Level: Diamond Posted Date: 11 Jun 2008
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2005 Indira Gandhi National Open University (IGNOU) Diploma Management Executive IGNOU MS43 Management Control Systems June 2005 Question paper
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IGNOU MS43 Management Control Systems June 2005
MANAGEMENT PROGRAMME
Term-End Examination
June, 2005
MS-43 : MANAGEMENT CONTROL SYSTEMS
Time : 3 hours
Maximum Marks : 100
(Weightage 70%)
Note :
(i) There are three Sections : Section A, B and C.
(ii) Section A is meant for the students who have registered for MS-43 before January 2005 i.e upto July 2004 semester
(iii) Section B is meant for the students who have registered for MS-43 from January 2005 semester onwards.
(iv) Attempt any thtee questions from Section A or B. Each question in Section A and B carries 20 marks.
(v) Section C is compulsory for all and carries 40 marks.
SECTION A
1. (a) "In an organization, control involves a variety of functions." What are these functions ? Briefly describe the three-tier spectrum of organizational planning and control.
(b) "The concept of responsibility is a logical extension of the idea of delegation of responsibility and authority for effective management control." Explain. What are the three key principles of effective control and management of operations ?
2. (a) What different concepts of profit could be considered in the measurement of performance of profit centres ? Which one would you recommend and why ?
(b) Explain Negotiated Price and Opportunity Cost as bases for determining transfer pricing. What are their merits and demerits from the practical point of view ?
3. (a) Discuss the scope of Flexible Budgeting, pointing out its merits and demerits.
(b) What basic factors should guide in designing performance evaluation reporting system ? Explain.
4. (a) What should be the objectives of Management Control System in a Bank ? Discuss some of the indicators of performance in a Bank.
(b) What pricing methods could be used in a non-profit organization ? Why should a non-profit organization have a reasonable pricing policy?
5. Write short notes on the following:
(a) Elements of a control system
(b) Profit centre as motivational tool
(c) Return on Investment Approach
(d) Performance Budgeting
SECTION B
1. Discuss the need for MIS in an organisation and explain the important considerations in designing Management Information System (MlS) for the purpose of Management Control.
2. Growing geographical reach and exploration of new markets has necessitated increased delegation and creation of responsibility centres. Elaborate this statement giving reasons and examples.
3. Write short notes on the following :
(i) Flexible budgeting
(ii) Balanced Score Card
(iii) Total Quality Management (TQM)
(iv) Management by Objectives (MBO)
4. Explain in detail the different types of risks faced by the banks and describe how can these be contained by designing proper management control system.
5. Explain in detail the main elements of Management Control System in development organisations.
SECTION C
6. Read the following case carefully and answer the questions given at the end.
BUILT-RITE APPLIANCE CORPORATION
The Built-Rite Appliance Corporation, with headquarters in Chennai is a major producer of all types of electrical home appliances - washers, dryers, ironers, freezers, refrigerators, vacuum cleaners, dish washers, mixers, and so forth, The Corporation has twenty-five manufacturing plants located throughout the country. The country is divided into six sales regions, and within region, into districts. There is a district sales office in every major city in the country. There are twelve warehouses located strategically throughout the country. There is at least one warehouse in each sales region.
Sales have increased each year since 1976. The expected sales volume for 2001 is over one-quarter of a billion rupees.
The Sales Organization
At the corporate level, the responsibility for product design, advertising and sales promotion is by product line, each line is in charge of a product manager who is also a Vice-President of the Corporation. The Vice-President (Distribution) is responsible for the actual distribution of all appliances. Appliances are sold to the consumer by independent retail dealers. These dealers are serviced by company-owned distributors. Each sales district is controlled by one or more distributors. .The distributor orders appliances through the regional office, either for his own inventory or for direct delivery to a dealer. The appliances are delivered from the closest warehouse where they are available.The warehouses are the direct responsibility of the Regional Distribution Manager in whose region the warehouses are physically located. Shipments across regional lines are, of course, common where products are unavailable at the warehouse where the order was originally placed.
The Regional Distribution Manager is responsible for the distribution of all product lines. He orders appliances through the warehouse coordinator and prescribes inventory levels for both the warehouses and distributors in his region. He is also responsible for the hiring, training, promoting, and so forth, of all of the distributors in his Region. He is responsible for recruiting, training, and maintaining a leadership organization within his region. He is not responsible for either product design or for advertising and sales promotion. This is the responsibility of the product managers.
The Product Manager
There are four Vice-Presidents who are product managers. These product managers are responsible for all of the product planning, advertising, and sales promotion for their appliances. Product planning is essentially a central staff operation, although individual product planners spend varying amounts of time in the field. Advertising and sales promotion, on the other hand, require a great deal of field coordination. As a result, each Product Manager has advertising and sales promotion personnel at each of the six regional offices. These people are responsible for ; (a) communicating the advertising plans to the Regional Distribution Manager so that the availability of appliances will be coordinated with the advertising; (b) coordinating the advertising plans with the other appliance lines; (c) conducting local advertising campaigns; and (d) providing feedback to the central group on sales promotion and advertising.
Evaluation ol Product Manager
Each of the Product Managers is evaluated informally by the Marketing Vice -President. Important factors in his evaluation are growth in the share market, new product development, meeting sales volume commitments, customer acceptance of his products, and meeting cost and budget goals.
Each year the Finance Committee (President, Executive Vice President - Marketing, Executive Vice -President - Administration and Vice - President - Finance) review and either adjust or approve the budget for each Product Manager. The budget is a fixed amount, divided into the three major functions; product planning, national advertising and sales promotion, and regional advertising and sales promotion. The product manager is expected to keep his expenditures within budget both in total and by activity. He is allowed to come back to the Finance Committee and ask for a budget revision if one becomes necessary. This is done, however, only where serious emergencies develop. The attitude of the Finance Committee generally discourages revisions. This attitude, together with the time and expense of preparing and justifying an increase in budget, makes most managers reluctant to go back for a revision of their budgets. The rigidity of the advertising and sales promotion budget has created problems for the Product Managers. To solve these problems, Lalit Sisodia, Vice-President and Product Manager - Laundry Products, proposed a technique for making the advertising and sales promotion budgets more flexible. He called this method the "ever-filling grainary" technique.
The Ever-Filling Grainary Technique
As explained by Lalit Sisodia the ever-filling grainary technique operates as follows :
Suppose we were to start with my technique in 2001. I would be allowed an advertising and sales promotion fund based on last year's sales for each product multiplied by the advertising expenses charged against that product. In other words, my beginning fund would equal my last year's recovery of advertising expense. For instance, our deluxe dryer is charged Rs. 10 a unit by the accounting department for advertising. If I sold 1,000 units last year, I would receive Rs. 10,000 in my advertising fund. The sum of all products sold last year multiplied by the accounted advertising charge would be my total beginning fund. Once my fund is established, I would not go back for any more money.
You can think of it as a grainary and the money in the fund is the grain ro fill my grainary initailly I reduce the amount of funds (or grain) in my grainary as I spend money on advertising. I refill the grainary by selling products because the sales price includes a charge for advertising. In this way, I get my money back and so that my grainary will constantly be filling itself. As long as I do not deplete my fund, I do not need to get further approval to spend money on advertising. This method has several advantages :
(i) It gives me flexibility on how much and when to spend my advertising funds The fixed budget does not give me enough latitude to take optimum action and it is too difficult and slow to get revisions
(ii) The control over my expenditures is automatic The Finance Commitiee is taken off the hook completely. If I do not get the money from my customers, I cannot spend it. When my sales are high, then we can afford to spend more.
(iii) If I need more money for adverijsing, I must get it from my customers, or I cannot spend lt ln this way, advertising is practically free. The customer pays for it in the price of the product and all I do is to collect it from him and, then, spend it.
Questions :
(a) Evaluate the "ever-filling grainary" proposal. Should it be adopted as proposed, or with modifications, or not at all ?
(b) If you believe, it should not be adopted, what alternatives, if any, do you propose ?
(c) What considerations in general should guide the administration of Budgetary Control System ? Examine the practices at Built-Rite in the light of such considerations.
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