Monday, March 4, 2019
Case Solution on Abrasm Company
- A - Case Study - On ABRAMS COMPANY - Of - direction check into scheme - - Presented to Presented by - DR B. A.Prajapati ModiRashmi S. (24) - MeghaniShital L. (20) - Trada Lalit V. (60) - RajdevBrijesh (46) - Ozha Sandip (47) - - - - Batch 2010-12 - - - - About The telephoner - US phoner - Manufacturing auto parts - marketing in Domestic as intimately as foreign Market - Most of the convergences related with. Automobiles - Trucks& Buses - Farm Equipments - Product & Marketing Division - Production Division * - club works on Three Parts. 1. - Ignition Parts 2. - transmittance Parts. 3. -Engine Parts. - Marketing Division * - Selling Through two Department. 1. - O. E. M. component. 2. - A. M. department. - EXHIBIT 1 - Partial Organization graph - - -Inside & Outside sales In 1992 * Total sales $500 billion Inside sales (to AM div) $100 million Outside gross sales (to OEM)- $400 million * Ignition parts sales- $130million * Engine parts sales- $90million * Transmissio n parts sales $100million * AM Division sales- $180 million ROI for the Manufacturing Plants * solely(prenominal) Plant has to meet targeted ROI. ROI = Budgeted Profit Actual beginning-of-the -year net assets Where Budgeted Profit =( expect Revenue- allocated O/H- tax) Actual beginning-of-the-year net assets = derive assets-current liabilities. Actual 1992 ROI computation- Rochester Plant Abrams keep ships company Transmission PartsDivision ROCHESTER PLANT Profit & ROI Statement,Dec 31,1992 Sales revenue$124,866 COGS. 73230 Gross delimitation.. 51636 Operating expenses.. 20792 Division Expenses assigned.. 11340 corporate expenses assigned. 3420 Profit in advance taxes. 16084 Taxes Imputed.. 4825 Profit.. $11259 * crystallize Assets Assigned as of January 1,1992 Total Assets Cash & receivable. $25000 Inventories 12875 Property, plant & equipment at book value. 86560 Total Assets .. 124435Less current liabilities. 26135 Net Assets.. $98300 ROI = Profit / Net Assets = $11259/ 98300 =11. 45% Suggestions to improve evaluation system * ROI bottom of the inning be utilise combination with other mental process measures-balanced set of presbyopic term/short term financial/non-financial * EVA can be used instead of ROI. Marketing Strategies * Top Management consider OEM & AM different. * apiece parts? OEM sales have to meet an Annual Sales Revenue. * The OEM department have to. 1. Minimize inventories. 2. Control monetary value. * AM has to concentrate on approachability of Parts. Incentive compensation Plan Appropriate 50 line & supply managers under plan. * bounty given on basis of fixed regulateula. * individually participant get bounty on standard bonus point(SBP). * SBP found on hierarchical position. Standard dollar award per point (SDAP) = total of SBP of all participants total bonus pool amount Standard Bonus in $ = Standard Dollar ? Standard Bonus Point show per point. of Participant. if Actual Profit 4% more than budgeted, Manager get 2 5% more standard bonus. Evaluation of incentive compensation plan * The exercise is measured by compare of actual profit and budget profit. all in all the measurement is associate with data, some(a)times the performance will be mold by variance elements, such as, economic environment, the demand level, material price, cost of labor, and government policy, so the measurement need to improve in some areas. Suggestions * The non-financial performance measurement system should be established. * The balanced scorecard is a good choice for company measure performance. With a good performance measurement system, the incentive compensation plan will be improved. Problems encountered with Management * Some contend over transfer pricing. Bias with AM division on placing order of parts. * All divisions using too much inventories. Question- 1 Evaluate each of the concerns expressed by top management, & if necessary, make recommendations countenance to the circumstances described in the cas e. Ans-1 * Management has 3 main problems 1. ROI Behavior. 2. raptus Price disputes 3. Operational trouble shouting. Recommendations * Company should use EVA rather than ROI. * Company should control the investments separately using NPV and capital turnover measures. * Bonus should be based on the budgeted income level. * Company should change the TP method. It will give all internal partners full information about the cost structure and company will avoid upstream fixed costs. Question- 2 What is your overall evaluation of Abrams? management control system ? Describe strengths or weakness that you identified but did not include in answering the front question. What changes, if any, would you recommend to top management ? Ans-2 * Company Management Control System was poor. * Company failed to minimize the cost and to control lineage level. Strength * The company has a clear management structure. * The company has employed a bonus plan for employees. The AM Marketing division wi ll input products form the other three divisions, and sell it to domestic and foreign market, it helps the company maintain cost when it input internal. Weakness * The Abrams Company has three totally autarkical divisions, and the three divisions are lack of connection. * The transactions between the three divisions dispute the transfer pricing. * OEM customers preferred than AM. Suggestions * Top management should try to control inventory level. * Company should use non financial measures like inventory turnover. * If it is an strategic contend company should connect this measure to the bonus system.