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Year 2009 Q1 Stages in Management control process The control process involves carefully collecting information about a system,

process, person, or group of people in order to make necessary decisions about each. Managers set up control systems that consist of four key steps:

1.

Establish standards to measure performance. Within an organization's overall strategic plan,

managers define goals for organizational departments in specific, operational terms that include standards of performance to compare with organizational activities.

2.

Measure actual performance. Most organizations prepare formal reports of performance

measurements that managers review regularly. These measurements should be related to the standards set in the first step of the control process. For example, if sales growth is a target, the organization should have a means of gathering and reporting sales data.

3.

Compare performance with the standards. This step compares actual activities to performance

standards. When managers read computer reports or walk through their plants, they identify whether actual performance meets, exceeds, or falls short of standards. Typically, performance reports simplify such comparison by placing the performance standards for the reporting period alongside the actual performance for the same period and by computing the variancethat is, the difference between each actual amount and the associated standard.

4.

Take corrective actions. When performance deviates from standards, managers must determine

what changes, if any, are necessary and how to apply them. In the productivity and quality-centered environment, workers and managers are often empowered to evaluate their own work. After the evaluator determines the cause or causes of deviation, he or she can take the fourth stepcorrective action. The most effective course may be prescribed by policies or may be best left up to employees' judgment and initiative. These steps must be repeated periodically until the organizational goal is achieved. Q 2What is a responsibility centre? List and explain different types of Responsibility Centers with sketches. Responsibility centers: A responsibility center is an organization unit that is headed by a manager who is responsible for its activities. In a sense, a company is a collection of responsibility centers. Each of which is represented by box on the on the organization are responsibility centers for section work shifts or other small organization units. At a higher level are departments or business units that consist of several of these smaller units plus staff and management people these larger units are also responsibility center. And from the stand point of senior management and the board of directors, the whole company is responsibility center although the term is usually used to refer to unit within the company. Types of Responsibility Centers Cost Center

Cost centers are divisions that add to the cost of the organization, but only indirectly add to the profit of the company. Typical examples include Research and Development, Marketing and Customer service. Companies may choose to classify business units as cost centers, profit centers, or investment centers. Profit Center A responsibility centre is called a profit centre when the manager is held responsible for both costs (inputs) and revenues (outputs) and thus for profit. Despite the name, a profit centre can exist in nonprofits organizations (though it might not be referred to as such) when a responsibility centre receives revenues for its services. A profit centre is a big segment of activity for which both revenues and costs are accumulated:

Investment Centre An investment centre goes a step further than a profit centre does. Its success is measured not only by its income but also by relating that income to its invested capital, as in a ratio of income to the value of the capital employed. In practice, the term investment centre is not widely used. Instead, the term profit centre is used indiscriminately to describe centers that are always assigned responsibility for revenues and expenses, but may or may not be assigned responsibility for the capital investment. It is defined as a responsibility centre in which inputs are measured in terms of cost / expenses and outputs are measured in terms of revenues and in which assets employed are also measured.

Nature of responsibility centers A responsibility center exist one or more purpose are its objectives. The company as a whole has goals, and senior management has decided on a set of strategies to accomplish these goals. The objectives of responsibility centers are to help implement these strategies Q.4 (a) Transfer Pricing is not an accounting tool comment with an illustration If a group has subsidiaries that operate in different countries with different tax rates, manipulating the transfer prices between the subsidiaries can scale down the overall tax bill of the group. For example the tax rate in Country A is 20% and is 50% in Country B. In the larger interest of the group, it would be advisable to show lower profits in Country B and higher profits in Country A. For this, the group can adjust the transfer price in such a way that the profits in Country A increase and that in Country B get reduced. For this the group should fix a very high transfer price if the Division in Country A provides goods to the Division in Country B. This will maximize the profits in Country A and minimize the profits in Country B. The reverse will be true if the Division in Country A acquires goods from the Division in Country B. Q.4.( b) Market Price is ideal transfer price even in limited markets. Comments By limited market it means that the markets for buying and selling profit centers may be limited. Even in case of limited market the transfer price that is ideal or satisfies the requirement of a profit center system is the competitive price. In case if a company is not buying or selling its product in an outside market there are some ways to find the competitive price. They are as follows: 1. If published market prices are available, they can be used to establish transfer prices. However, these should be prices actually paid in the market-place and the conditions that exist in the outside market should be consistent with

those existing within the company. For example, market prices that are applicable to relatively small purchases are not valid in this case. 2.Market prices are set by bids. This generally can be done only if the low bidder has a reasonable chance of obtaining the business. One company accomplishes this by buying about one-half of a particular group of products outside the company and one-half inside the compan 3.If the production profit center sells similar products in outside markets, it is often possible to replicate a competitive price on the basis of the outside price. 4.If the buying profit center purchases similar products from the outside market, it may be possible to replicate competitive prices for its proprietary products.

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