Seat No.: ________ Enrolment No.

___________

GUJARAT TECHNOLOGICAL UNIVERSITY

MBA – SEMESTER 4 – EXAMINATION – SUMMER 2019

Subject Code: 2840007 Date: 03/05/2019

Subject Name: Management Control System
Time: 10:30 AM To 01:30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.

Q.No. Question Text and Option 6

Q.1 _________budget usually covers one year and states the revenues and expenses planned for that
(a) year.
A. Operating Budget B. Capital Budget
1.
C. Contingency Budget D. All of the above
Which is a systematic management process?
2. A. Strategy Formulation B. Strategy Planning
C. Budgeting D All of the above
Which structure is not a type of organization?
3. A. Functional structure B. Business unit structure
C. Non functional structure D. Matrix structure
The “right or “proper” amount can be estimated with reasonable reliability is called
4. A. Engineered cost B. Variable cost
C. Discretionary cost D. Fixed cost
Which is not an element of control system
5. A. Detector B. Assessor
C. Communication network D. Competitor
_________centers are units that provide services to other responsibility centers.
6. A. Administrative centers B. Support centers
C. Revenue centers D. Expense centers
Q.1 (b) Define the terms: 04
(i) Balanced Scorecard

(ii) Cycle time

(iii)Task control

(iv) Stock options

Q.1 (c) Explain strategic planning process. 04

Q.2 (a) What do you understand by Management Control System? How it is differ from strategy 07
formulation & task control.
(b) “In a Goal Congruent process, the actions people are led to take in accordance with their 07
perceived self interest are also in the best interest of the organization”. Do you Agree? Justify
the statement.
OR
(b) How formal and informal control systems play an important role in Service and Manufacturing 07
industries? Explain with illustrations.

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Q.3 (a) Distinguish between EVA and ROI. 07
(b) The Power light division manufactures batteries that it sells primarily to the Lantern division 07
for inclusion with that division’s main product. Last year 20% of the batteries were sold to the
other companies at a price of Rs. 10 each. The remaining batteries went to the Lantern
division. Cost data for the year are presented for Power Light is as under –
Units Produced 5,00,000
Manufacturing Cost (Rs.) 30,00,000
Marketing cost (Rs.) 1,00,000
Administrative Costs (Rs.) 8,00,000
(i) What will be transfer price of batteries if the company uses

a) Market price?

b) Market price less Marketing cost

c) A transfer price that will yield a net income of 10% on sales for Power Light?

(ii) Prepare a schedule showing the Power Light division’s net income for each of the
transfer pricing alternatives computed.

OR
Q.3 (a) Distinguish between EVA and ROI. 07
(b) What is transfer pricing? Can we use Two step transfer pricing method and Two sets of 07
transfer price in firm? If yes then when we can use?
Q.4 (a) Explain various limitations of variance analysis. 07
(b) “People are influenced by both positive and negative incentives” Validate the statement from 07
research findings.
OR
Q.4 (a) Write a note on – Difficulties in implementing Performance Measurement System. 07

(b) Explain advantages and pitfalls of strategic planning from view point of firm’s management 07
control.
Q.5 Case study on Transfer Pricing based on opportunity cost 14

A B C D
Market price per unit (Rs.) 150 146 140 130
Variable cost of production per 130 100 90 85
unit (Rs.)
Labor hours required per unit 3 4 2 3

Division Z is a profit center which produces four products A, B, C and D. Each product is
sold in the external market also.
Product D can be transferred to Division Y, but the maximum quantity that may be required
for transfer is 2,500 units of D.
The maximum sales in the external market are:
A 2,800 units
B 2,500 units
C 2,300 units
D 1,600 units
Division Y can purchase the same product at a price of Rs.125 per unit from outside instead
of receiving transfer of product D from Division Z.
Q.1 What should be the transfer price for each unit for 2,500 units of D, if the total labor
hours available in Division Z are 20,000 hours?
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 Q.2 How to do ranking of products when availability of time is the key factor?

OR
Q.5 Case Study - Piedmont University 14
When Hugh Scott was inaugurated as the 12th President University in 1984, the university was
experiencing a financial crisis. For several years enrollments had been declining and costs had
been increasing. Scott immediately instituted measures to turn the financial situation around.
He rose tuition, froze faculty and staff hiring’s, and curtailed operating costs. Scott was a
persuasive person, and the faculty and trustees generally agreed with his actions. In the year
ended June 30, 1986, there was a small operating surplus. In 1986, Scott was approached by
Neil Malcom, a Piedmont alumnus and partner of a local management consulting firm, who
volunteered to examine the situation and make recommendations for permanent measures to
maintain the university’s financial health. Scott accepted this offer.
Early in 1987, he submitted his report. It recommended increased recruiting and fund raising
activities, but its most important and controversial recommendation was that the university be
recognized into a set of profit centers.
At that time the principal means of financial control was an annual expenditure budget
submitted by the deans of each of the schools and the administrative heads of support
departments.
Piedmont University: Rough Estimates of 1986 Impact of the proposals ($ millions)
Profit Center Revenue Expenditures
($) ($)
Undergraduate liberal arts school 30.0 29.2
Graduate liberal arts school 5.6 11.5
Business school 15.3 12.3
Engineering school 17.0 17.3
Law School 6.7 6.5
Theological school 1.2 3.4
Unallocated revenue* 5.0
Total academic 80.8 80.2
Other
Central administration 10.1 10.1
Computer 3.4 3.4
Library 3.4 3.4
*Unrestricted gifts and endowment revenue, to be allocated by the president.
Central Administrative Costs: Currently, no university wide administrative costs were charged
to academic departments. The proposal was that these costs would be allocated to profit
centers in proportion to the relative costs of each.
Gifts and Endowment: The revenue from annual gifts would be reduced by the cost of fund –
raising activities. The net amount of annual gifts plus endowment income would be allocated
by the president, according to his decision on the needs of each school.
Computer: Students and faculty members could use them as they wished, subject to and
informal check on over – use by people in the computer rooms. A few departmental
mainframe computers and hundreds of microcomputers and word processor were located
throughout the university, but there was no central record of how many there were. The
proposal was that each user of the engineering school computers would be charged a fee
based on usage. Several deans objected to this plan. They pointed out that neither students nor
faculty understood the potential value of computers, and they wanted to encourage computer
usage as a significant part of the educational and research experience.
Library: The university library was the main repository of books and other material, and there
were small libraries in each of the schools. The proposal was that each student and faculty
member who used the university library would be charged a fee, either on an annual basis or
on some basis related to the time spent in the library or the number of books withdrawn.
Cross Registration: Currently, students enrolled at one school could take courses at another
3
school without charge. The proposal was that the school at which a course was taken would
reimburse the school in which the student was enrolled. The amount charged would be the
total semester tuition of the school at which the course was taken, divided by the number of
courses that a student normally would take in a semester, with adjustments for variations in
credit hours
Questions
1. Do you see other problems with the introduction of profit centers? If so, how u deal
with would you deal with them?

2. What are the alternatives of a profit center approach?

3. Assuming that most of the issues could be resolved to your satisfaction; would you
recommend that the profit center idea be adopted, rather than alternative?

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