Third Year

Time : Three hours

Maximum : 75 marks

1. Section A consists of TEN short answer questions. The candidates has to answer FIVE questions. The answer shall not exceed 1 page each.
2. Section B consists of FIVE questions. Each question consists of either or choices and the candidates has to answer either (a) or (b) from each question. The answer shall not exceed 5 pages each.

SECTION A — (5 x 3 = 15 marks)

Write short notes on any FIVE of the following:

(a) Expense centre
(b) Managed cost
(c) Cost benchmarking
(d) A Characteristics of goal setting process
(e) Hierarchy of objectives
(U Evaluating a sub—contractor
(g) Types of profit centres
(h) Cost based transfer price
(i) Characteristics of a non—profit organisat
(j) Informal control systems.

SECTION B — (5 x 12 = 60 marks)

2. (a) Explain different types of organisation structures and their implications on management control system.

Or

(b) Discuss the issues in creation of investment centres. What are the limitations of an investme centre?

3. (a) Prem Vanaspati Ltd. (PVL)

Prem Vanaspati Ltd (PVL) is a Rs. 200 company with manufacturing facilities in Bombay. The company buys oil seeds from the commodity market and produces hydrogenated oil or vanaspati oil under 'Premier brand name. The product is very popular in Western and Southern India. Besides Vanaspati, the company also produces limited quantity of laundry soaps and shortenings. However, these byproducts do not even 1% of the total turnover.

PVL follows a strict control system for not its divisions but also for its head office. It has five shifting divisions and two support divisions as follows:

Operating Divisions:

(i) Commodity Division (CD)
(ii) Purchase Division (PD)
(iii) Manufacturing and Operations division (MOD)
(iv) Marketing Division (MD)
(v) Sales Division (SD)

Service Divisions:

(i) Finance and Accounts Division (FAD)
(ii) Human Resource Division (HRD)

The CD purchased the oil seeds from the market and sold if to MOD at predetermined prices. This price for internal transfer was decided at the beginning of the year. Similarly, PD purchased all the other requirements, of the company, such as, packaging materials, gases, chemical ingredients and preservatives etc. in accordance with the annual planned requirement and supplied to MOD at predetermined prices.

MOD was the largest division in terms man power. The Vanaspati factory was under the MOD. The final main product, Vanaspati oil was sold by MOD and SD. MOD transferred the product at predetermined prices to these two divisions, which sold the products prices determined by them, but largely based competitive conditions S.D. was responsible for sales, made to hotels, restaurants, confectioners, and companies producing food products using Vanaspathi. Likewise MD was responsible for selling retail packages meant for consumers. While SD dealt with organisational buyers, MD dealt with small consumers.

All the above five divisions CD, PD, MOD, MD and SD were profit centres. The two support divisions, namely FAD and HRD were cost centres.

The Head Office of PVL was also treated as a profit centre. For allowing divisions to use space in the corporate building it collected book rent from the divisions, and this constituted book rent from the divisions, and this constituted a major chunk of its revenue. Besides, when the divisions needed extra capital, such requirement was met by Head Office and the Head Office charged interest @ 21%. Thus, out of the earnings of H.O., the expenses of H.O. were met and the H.O. was expected to make a net surplus or profit. Incidentally when divisions had surplus money, they were allowed to deposit the money with the H.O. and they earned interest from H.O. @ 18%. The H.O. thus operated as a bank for the divisions.

At PVL budgets and targets were rarely managed, once these were set at the year's beginning. An financial observed that the budget was changed only once from the last ten years.

The evaluation of performance of divisions was based on well laid out appraisal system. The annual increments granted were directly linked to performance as follows :

Performance level - Increment as %ge of previous year's salary

90% of budget - 0%
90% - 99% - 2%
100 - 110% - 5%
110 - 120% - 10%
Above 120% - 15%

There was no subjectivity in appraisal system. If a person's performance was rated as poor (i.e less than 90%) for two consecutive periods, he was asked to quit. Similarly, if a person got two excellent performances (i.e. above 120%), he got a promotion in about one and half years.

Question:

What do you think of the control system at PVL? What reasons you see for its working or not working? Can you make suggestions for its improvement?

Or

(b) Punjab Co-operative federation (PCC) three divisions, namely, (i) Procurement and Distribution (ii) Manufacturing Division (MD) (iii) Service Division (SD)

The PDD dealt with procurement grains, mainly wheat, under two schemes, namely (1) price support scheme and (2) free purchase scheme Under the first scheme purchased were made on of the Food Corporation of India (FCI) at the minimum support price and stored in own or rented warehouse till despatch instructions were received from FCI Sometime food grains were stored for as long 1—2 years. If from the date of procurement to date despatch, there was a delay of more than six months, every month of delay the FCI paid an additional amount. (i.e over and above the procurement price and the procurement fees) towards interest. PDD made a profit from such revenue after deducting its expense PDD operated in all the districts through its distribution offices.

Under the second scheme, the PDD could purchase food grains at higher than support price, and could sell it on its own in the market directly or after further processing. If it could buy at low prices and sell at the time of scarcity, it could earn a good profit.

The division operated through several offices, which had a District manager, two sectors, one for food grains and another for fertiliser, about half a dozen support staff. During heavy the district offices worked almost for 12-14 a day. Dishonesty and pilferage in co-operative, political pressures, inadequate staff to supervisor activities in heavy seasons, perishability of grains, storage conditions etc. were major handicaps for the division to maintain efficiency in operations. Sometimes co—operative banks which were bankers for the PCF had lacked funds, which resulted difficulties for PCF.

Question:

If you are to design management control system for PDD, which factors would you consider and how you go about in designing indicators? Discuss with justification.

4. (a) Explain different methods of controlling project with their advantages and disadvantages.

Or

(b) Describe the features of management control system for a charitable hospital.

5. (a) Explain how discretionary costs of controlled through industry analysis method explain conditions in which such methods suitably employed.

Or

(b) Explain different types of budgets and linkage with Master Budget. Please give formating these budgets.

6. (a) What is non—financial control? Explain examples.

Or

(b) "Budget is a guideline not a straight jacked - Elucidate.

[201/DM-I/03]

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