FM02

Management Control Systems

Assignment I
Assignment Code: 2010FM02B1 Last Date of Submission: 30th September 2010
Maximum Marks: 100

Attempt all the questions. All questions are compulsory and carry equal marks.

Section A

1. What is the need of control systems in an organization? List important control systems
that are commonly employed in large organizations.

2. “Management control system is influenced by some internal as well as external factors.”

Elucidate the statement and list important environmental factors that affect management
control system in an organization.

3. What do you mean by strategy? Discuss some strategies that are normally adopted by
firms for:
(i) Increasing sales, and
(ii) Determining price in competitive market.

4. (i) Define responsibility centre. Illustrate how a responsibility centre is formed

in a big organisation.
What are the responsibilities associated with that centre?
(ii) “Responsibility report forms a logical framework within which the management
makes judgement about the performance of various centres.” Elucidate.

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 Section B

The following is a Control Report prepared by a Cost Accountant of Department X in a factory:

Overhead directly assigned to Department X:
Item Rs. Rs.
Indirect Materials (based on actual requisitions) 1,000
Indirect Labor (job tickets) 900
Overtime charges 100
Depreciation on equipment 500 2,500
Allocated Factory Overhead (38% of Factory space) 4,300
Allocated Overhead of Repair Shop (62% of exp. in Repair Shop for 1,200
Dept. X)
Allocated Office and Administration Overhead (on an agreed basis) 5,000
Total Departmental Expenses 13,000
Revise the report treating Department X as a Responsibility Centre.

FM02
Management Control Systems

Page No. 2 of 4
 Assignment II

Assignment Code: 2010FM02B2 Last Date of Submission: 15th November 2010

Maximum Marks: 100

Attempt all the questions. All questions are compulsory and carry equal marks.

Section A

1. Enumerate any three methods of determining transfer price. In transfer

pricing should there be a conflict between a division and a company as a whole? What is the
guiding principle in avoiding such conflicts?

2. (i) Differentiate between budgetary control and standard costing.

(ii) Explain the problems concerning control of operations that a manufacturing company can
be expected to experience in using a standard costing system during periods of rapid
inflation.

3. What are the reports generated for performance measurement? Illustrate.

4. What are the modern control methods? Explain with examples.

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 Section B
A Company has two Divisions, Division 'A' and Division 'B'. Division 'A' has a Budget of selling
2, 00,000 nos. of a particular component 'x' to fetch a return of 20% on the average assets
employed. The following particulars of Division 'A' are also known:

Fixed Overhead Rs, 5 lakhs

Variable Cost Re. 1 per unit
Average Assets: Sundry Debtors Rs. 2 lakhs
Inventories Rs. 5 lakhs
Plant & Equipments Rs. 5 lakhs

However, there is constraint in Marketing and only 1, 50,000 units of the component 'x' can be
directly sold to the Market at the proposed price.

It has been gathered that the balance 50,000 units of component 'x' can be taken up by Division
'B', Division 'A' wants a price of Rs. 4 per unit of 'x' but Division 'B' is prepared to pay Rs. 2 per
unit of 'X'.

Division 'A' has another option in hand, which is to produce only 1, 50,000 units of component
'x'. This will reduce the holding of assets by Rs. 2 lakhs and fixed overhead by Rs, 25,000,

You are required to advise the most profitable course of action for Division “A”

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