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Management Control Systems

Name (Of the faculty) : Prof.Bhave

Signature:

Date of Evaluation:

Remarks (By Faculty): _________________________________________

________________________________________

_________________________________________

_________________________________________

Name:Sandeep .M.Deodhar

Due Date / Day: 9/11/2010

Class: ISBJ

Roll No: 2713155

Subject: MCS

Assignment: 3

Title of the Assignment: AUDIT,ABC,SALES FORECAST

Signature: (Of the student)

Marks out of 15

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Ans 1:The methods of sale forecast are as follows:

y Causal approach: Controllable and non-controllable are analyzed in detail and then

projected into future based on projections and estimates of the casual variables.

Controllable variables are as follows product line ,price ,advertising and promotion

activities .size of sales force and sales areas. Uncontrollable factors are as followspopulation, GNP and general economic conditions.

y Non-causal approach: No in-depth analysis of of different factors is done .Forecast is

done according to historic data

y Direct and indirect approach: Under the direct approach industry sales are projected

and then based on company market share projection of company sales are made .In direct

approach sales estimates are prepared without prior projection of the industry as a whole.

Judgment methods;

y Sales force composition method: In this method forecast is done by is by the surveys

conducted by sales representatives

y Sales division supervisors composite: Forecast is done by the sales supervisors

y Executive opinion method: In this sales planning is done at central office

Statistical methods

y Correlation method-A statistical analysis is used to measure the correlation between

basic series and the company sales in this case sales relation is developed between sales

and independent variable(base series) .Base series of economic are as follows index of

bank deposits or index of industrial production

y The cross cut method: This is based on the facts that no two cycles are alike but like

causes always produce like results .The facts about a given situation are assembled and

relying on the knowledge of economic processes

y

S

pecial h

istory method: Past record is considered and accordingly sales forecast ismade. This helps in prediction of occurrence of the same situation in the future

y Trend analysis: This method projects historical trends into future

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Special purpose methods

Industry analysis: A forecast of the total quantity of production for the manufacturing units is

developed. A projection is made of the share of the market that the single company can accept

based on the earlier period trends of expansion in market share and in the final step all

identifiable factors affecting sales of the company should be analysed .Advantage of this methodis industrial data is available readily so projections can be made more precisely.Disadvantage

with this method is that if incorrect data is available projections could go wrong

Product line analysis:Separate analysis of each product is required.The summation of these

product line projections constitutes overall sales projection of the company

End use method:In this method detailed breakdown of product sold is analysed and what is theresponse to the product sold in market is done.This method requires careful investigation and

direct communication with the major industries or segments of the industry.

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Ans 2: The Balanced Scorecard goes beyond standard financial measures to include the

following additional perspectives: the customer perspective, the internal process perspective, and

the learning and growth perspective.

Diagram of the Balanced Scorecard

Financial

Customer StrategyBusiness

Processes

Learning

& Growth

y Financial perspective - includes measures such as operating income, return on capital

employed, and economic value added.y Customer perspective - includes measures such as customer satisfaction, customer

retention, and market share in target segments.y Business process perspective - includes measures such as cost, throughput, and quality.

These are for business processes such as procurement, production, and order fulfillment.y Learning & growth perspective - includes measures such as employee satisfaction,

employee retention, skill sets, etc.

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Objectives, Measures, Targets, and Initiatives

Each perspective of the Balanced Scorecard includes objectives, measures of those objectives,

target values of those measures, and initiatives, defined as follows:

y Objectives - major objectives to be achieved, for example, profitable growth.y Measures - the observable parameters that will be used to measure progress toward

reaching the objective. For example, the objective of profitable growth might bemeasured by growth in net margin.

y Targets - the specific target values for the measures, for example, +2% growth in netmargin.

y Initiatives - action programs to be initiated in order to meet the objective.

These can be organized for each perspective in a table as shown below.

ObjectivesMeasuresTargetsInitiatives

Financial

Customer

Process

Learning

Balanced Scorecard as a Strategic Management System

The Balanced Scorecard originally was conceived as an improved performance measurement

system. However, it soon became evident that it could be used as a management system toimplement strategy at all levels of the organization by facilitating the following functions:

1. Clarifying strategy - the translation of strategic objectives into quantifiable measuresclarifies the management team's understanding of the strategy and helps to develop acoherent consensus.

2. Communicating strategic objectives - the Balanced Scorecard can serve to translatehigh level objectives into operational objectives and communicate the strategy effectivelythroughout the organization.

3. Planning, setting targets, and aligning strategic initiatives - ambitious but achievabletargets are set for each perspective and initiatives are developed to align efforts to reachthe targets.

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4. Strategic feedback and learning - executives receive feedback on whether the strategyimplementation is proceeding according to plan and on whether the strategy itself is

successful ("double-loop learning").

Ans 3: Audit: An audit is an independent examination of financial information of any entity

whether profit oriented or not and irrespective of the size or legal form. When such an

examination is conducted with a view to expressing an opinion there on

Financial audit:A financial audit, or more accurately, an audit of financial statements, is the

review of the financial statements of a company or any other legal

entity(including governments), resulting in the publication of an independent opinion on whether

those financial statements are relevant, accurate, complete, and fairly presented. Financial audits

are typically performed by firms of practicing accountants due to the specialist financial

reporting knowledge they require. The financial audit is one of many assurance or attestationfunctions provided by accounting and auditing firms, whereby the firm provides an independent

opinion on published information. Many organizations separately employ or hire internal

auditors, who do not attest to financial reports but focus mainly on the internal controls of the

organization. External auditors may choose to place limited reliance on the work of internal

auditors.

Internal audit: Internal auditing is a profession and activity involved in helping organizations

achieve their stated objectives. It does this by using a systematic methodology for analyzing

business processes, procedures and activities with the goal of highlighting organizational

problems and recommending solutions. Professionals called internal auditors are employed byorganizations to perform the internal auditing activity.

Cost audit: Cost Audit is the process of ascertaining whether the production, marketing and

sales processes as well as other aspects of a business are managed in the most cost effective way.

This is essentially an Internal Audit and is done as a tool for optimizing management efficiency.

The most important benefit is the location of unseen leaks in revenues or unproductive or under-

productive employment of resources. Always it is desirable to have a Cost audit doneperiodically, to prevent the situation getting out of control, and to help the management to take

prompt action where necessary.

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Ans 4:Activity Based Costing System:

Activity Based Costing (ABC) is an accounting technique that allows an organization to

determine the actual cost associated with each product and service produced by the organizationwithout regard to the organizational structure. It is developed to provide more-accurate ways of

assigning the costs of indirect and support resources to activities, business processes, products,

services, and customers. ABC systems recognize that many organizational resources are required

not for physical production of units of product but to provide a broad array of support activities

that enable a variety of products and services to be produced for a diverse group of customers.

The goal of ABC is not to allocate common costs to products. The goal is to measure and then

price out all the resources used for activities that support the production and delivery of products

and services to customers.The basis of Activity Based Costing is: look at the activities required

to produce the cost of the product or service. The activities consume resources and the cost of

these can be calculated. The amount of activity required for each product and service is

determined, hence the real cost can be determined.

Stages in Activity Based Costing:

1. Determine Activities (work performed) that are supported by Resources2. Determine cost driver for each major activity3. Create cost center for each major activity4. Trace the cost of activities to products according to products according to a products

demand for activities

These steps are discussed in greater length below.

Identify the resources: The first stage is to identify the resources in the organization. Examplesof resources include machine related activities ,direct labour activities and various support

activities such as ordering,receiving,materials handling, parts administration productionscheduling ,packing and dispatching

Determine the cost driver: The second stage is to identify the factors that influence the cost of

particular activity. The term cost driver is used to describe events that are significantdeterminants of the cost of the activities .For example, if production scheduling costs is

generated by number of production runs that each product generates then the number of set-upswould represent the cost driver for production scheduling

Create cost center: The third stage requires that cost center be created for each activity .Forexample the total costs for all set ups might constitute one cost center for all set up related cost

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Trace the cost of activities to products according to products according to a products

demand for activities-The final stage is to trace activities to products according to product

demand for these activities during the production process