Harshad Banekar - Individual Assignment 2

7/26/2019 Harshad Banekar - Individual Assignment 2

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Harshad Bandekar

MAP (Professional Accounting)

1465518

Individual Assignent ! Assignent "e#ort $%$

Q 1 - Compare and contrast functional and divisionalzed

organisational structures and outline the advantages and

disadvantages associated with divisionalized performance

management.

Ans & 'hen a #articular usiness gros there is a need to organi*ed

co#an+ structure, it is then the+ traditionall+ segregate the #eo#le +

their roles and functions- .his setu# lets #eo#le ith siilar /o connect

and share their resources- A divisional structure, in the eantie #laces

e#lo+ees together to serve a coon cause- Both these structures are

vertical, #iling a iddle and u##er anageent order ato# ase of

e#lo+ees- .hese to structures have a ver+ i#ortant di0erence also

hich are as follos &

Responsiveness: - In functional structure the anageent order of

vertical structure is ore estalished and has #oerful adinistration-

.he adinistration strangles ada#tailit+ and res#onsiveness resulting in

rigid, achine&like co#anies ith tight controls and clear chains of

coand- .he divisional structure is less rigid- Being organi*ed around a

utual arket focus rises the structure2s res#onsiveness, ith the vertical

structure still retaining soe of the roust controls evident in the

functional structure-

Organizational Flexiilit!: - 3rgani*ing around a utual arket focus

also eans ever+ division ight e arranged according to the

reuireents of its s#ecic focus- 3nce divisions are fored, ork is


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regularl+ further sudivided + functions, ut that isnt andator+- A

division a+, for e7a#le, for a grou# of e#lo+ees into teas to

achieve ork- .he functional structure locks in organi*ation, this stailit+

letting it to uild a solid drive toards a desired end- .his lets co#aniesassroduce and regulate services and #roducts-

"anagement Focus: - In divisional structure the iddle anageent

has a chance to shine- .he reason ehind it is each division o#erates as if

it ere a self&directed usiness, divisions regularl+ are knon as strategic

usiness units- ##er anageent continues to su#ervise things at the

#arent co#an+, leaving iddle anagers in control of the divisions- 'ith

this e0ect, anagers run 9trategic Business nits as if the+ ere usiness

oners or :;3s- or

e7a#le, the structure ust e#lo+ to du#licate #ersonnel and resources

for each division, su##ort sta0 and su##lies-

Coordination& Cooperation and Communication: - :oo#eration,

coordination and Interde#artental counication can ecoe issue in

the functional structure- It ill e di=cult for the segregated orkers to

understand the issues and #riorities of other functional areas- .he

#role is not severe ithin a divisional structures 9Bs ecause,

irres#ective of function, ever+od+ is dedicated to the arket or #roduct

around hich the division is fored- .he divisional structure doesnt avoid

these #roles altogether, though- :oo#eration, coordination and

counication, eteen 9Bs a+ develo# #roles that are orsened

+ distance-


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'dvantages and (isadvantages are as follows: -

& .he to# anageent are free fro detailed involveent in dail+

o#erations and allos the to dedicate their tie and e0orts to

strategic #lanning, #olic+ designing, overall coordination and

direction-& .he anagers are involved in the da+&to&da+ running of usiness

and are acuainted ith the situation- .his i#roves the decision&

aking #rocess and leads to ore infored decisions in the

organisation-& Managers can uickl+ react to ?uctuations in the arket,

co#etition, o##ortunities availale, as there is non&e7istence of

adinistrative ottlenecks in their organisation hich can rise the

#rotailit+ of the overall co#an+-&


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these #ersonnel can save one+- >urther, the costs of collecting and

#rocessing inforation in a divisionali*ed organisation ight e

igger than if such data ere gathered and #rocessed centrall+- If

to# anageent of a decentralised co#an+ are going fordivisionali*ation, it is essential that the+ easure hether the

additional enets ill e7ceed the additional costs-& .he .o# anageent, + allocating the decision aking control to

divisional anagers, a+ lose control since the+ are not ell versed

of hats is going on in the organi*ation as a hole-

Q ) -(iscuss the circumstances that need to prevail for a

divisionalised performance management approach to e

appropriate.

Ans ! .he need to #revail divisionali*ed #erforance anageent

a##roach is as follos &

'ork allocation is one of the coon reason for delegating decision&

aking authorit+- As the co#anies gros, and function in ore varied

arkets, the decision&aking #rocess a+ ecoe slo don and out&of&

touch if it is centre in a fe individuals- @rou#s are utili*ed in order to

coordinate data and to develo# decisions in #lace of distinct e7ecutives-

&


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akes it likel+ to assess anagers on their skill to generate revenue

fro o#erations-& In divisionali*ed o#erations the chain of coand shortened as ost

decisions are ade at the division level or elo- Hence, a

divisionali*ed co#an+ has to ore reactive to arket ?uctuations

and to #roduction i#roveents than a centrali*ed co#an+-& .he e0ect of devisionali*ation is of oving decision #oints closer to the

sources of inforation for those decisions as the inforation used in

the anageent of a co#an+ is estalished at loer levels in the

organi*ation-

Circumstances essential for divisionalization to succeed are as

follows: -

& ;ver+ division has to e adeuatel+ autonoous of other divisions ith

res#ect to oth #roduction and arketing activities to ake its distinct

#rot res#onsiilit+ a eaningful realit+-& A certain e7tent of collaoration and interde#endence aong the

divisions is essential to acco#lish cor#orate goals so that the

co#an+ gro as an econoic entit+- .he o/ective is to e7#loitchances for o#erating, investent, and #roduct&line collaorations-

& "elations aongst divisions ust e controlled so that no division, +

seeking its on #rot, can decrease that of the cor#oration-& .he cor#orate anageent has to sustain soe self&disci#line in

delivering directions to division anagers to conr division anagers

are aking decisions and not /ust anaging decisions ade at a

higher level-

Q *. +sing an appropriate diagram& descrie ,ife C!cle Cost

management. n !our answer !ou will need to include the aims of

the ,CC approach and how it sets out to achieve this.

Ans & .he #rocess of identif+ing and docuenting all the costs involved

over the life of an asset is knon as ife :+cle :osting (::)- .he ke+

o/ective of an organisation is to ake #rot, hen an organisation tries

to ake #rot fro a #articular #roduct, it is essential that the overall


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revenue e7ceeds total cost fro #roduct, not /ust the e7#ansion cost ut

for the hole cost that a+ arise hile #roducing and after the #roduction

#rocess-

.he hole #roduct life c+cle can e segregated into four #arts, the design

stage, anufacturing stage, o#eration stage and the end of the life stage-

.hroughout the design stage the cost occurred are design, research anddevelo#ent and tooling cost- >or anufacturing stage, the life c+cle has

se#arate sets of cost drivers, such as ra aterials, laour, overheads

cost, setu# cost, inventor+ cost, training cost, #roduction, achiner+ and

de#reciation cost etc are soe of the ain cost centres linked ith

#roduction stage- 3#eration stage raises certain distinctive costs such as,

distriution, arrant+ clais and advertiseent costs etc- ;nd of the life

cost involves, environental cleaning, dis#osal and decoissioningcosts, hich ends the cost life c+cle for a #roduct-

>ro the aove entioned diagra it is clear that a##ro7iatel+ 8

#ercentage of cost can e devoted, at the design stage, as it dictates the

aterials to e used and achiner+ to e introduced and the level of

training essential + laourers to undertake the action- .he design stage

lets the co#anies to forecast the future cost drivers to a #articular level

of correctness and it is at this stage that the co#an+ can take&u# actions


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to decrease the cost drivers, these can e changed in design of the

#roducts, nding sustitute ra aterial resources to reduce cost, alter

e7isting s+stes to i#rove the co#lete s+ste and reduce cost-

.he ain o/ective of ife c+cle a##roach is to recogni*e that the total

cost of #roduct during the course of the #roduct life c+cle- ife c+cle

ethod hel#s to recogni*e the correct #rice- Another ai of life c+cle

a##roach is to decrease total cost involved during the course of the

#roduct life c+cle- ife c+cle ethod hel#s to evaluate future cost related

ith the #roduct during the course of its lifec+cle- It also hel#s in

recogni*ing the reakeven nuers for the #roduct-

"ecogni*e that the total cost of #roduct during the course of the #roduct

life c+cle- >or design stage the designers and innovators in the

organisation tries to create a ne #roduct, huge aount of cost in ters

of laour hours s#end, resources utilised, ra& aterials otained and

tooling kit to ake the sa#le of the #roduct and feasiilit+ stud+ adds

cost to the design stage, in the anufacturing stage, laour, aterial,

overheads, setu# costs etc are recogni*ed after hich coes theo#erating stage, deliver+ and arrant+ clais are usuall+ the a/or cost

drivers in this stage and nall+ the end of life stage, in hich dis#osal and

decoission are soe of the a/or cost drivers that ould a0ect the

total cost of the #roduct during the course of its life c+cle-

.he anageent can clearl+ recogni*e the future cost drivers that the

r ill e7#erience hen the #roduct goes fro the design stage to the

#roduct stage and e+ond to other stages in the #roduct life c+cle- 3n the

foundation of this knoledge the anageent can conte#late hether

to go ahead ith the #roduct or not-

ife c+cle ethod hel#s to recogni*e the right #rice- 'hen the entire

out?os of cash in ters of cost centres are recogni*ed, this result in

likelihood of future e7#enses ill enet of hich, etter assessing of

e7#enses can e ade and on the asis of hich the #ricing of the#roduct can e deterined- .he #ricing of the #roduct hel#s the


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organisation to gain igger #rot than the actual cost sustained creating

#rots for the organisation has a hole-

.he decreased total cost involved during the #roduct life c+cle, ost costs

are related to each other, hence hen a sall change in the design can

e0ect in huge anufacturing, arrant+ and service and re#air cost, or

such changes can decrease the anufacturing and laour costs- .hese

as#ects are advantages for a r ho is tr+ing to decrease cost- If ore

attention to aste dis#osal echanis along ith e=cient use of

achiner+ ill reduce oth aintenance cost and cost of dis#osal at the

end of the life c+cle-

#xample If a later design had four scres and ith the ne design, the

engineers ere ale to reove one scre and ake it ith three scre,

this act ill go long a+ in saving the co#an+ huge costs ith res#ect to

ra aterial, laour, aintenance cost etc- ;ven a inute change can

create a#lied e0ect of the costs involved in the #roduction c+cle-

ife c+cle ethod hel#s to estiate future cost linked ith the #roduct

during the course of its lifec+cle ! 'hen the anageent chooses to go

ahead ith a #rotot+#e and ake it into real #roduct, this decision can e

in?uenced + several factors and the one ain factor to consider is the

cost involve during the course of the #roduct c+cle- .he future cost

certainties hel# anageent to recogni*e the #roale risk and cash out

?os that ight e #resent during the course of the #roduct c+cle and

this data is valuale for aking decisions on hether to go ahead ith the

#roduction #rocess or not- .he cost ecoes #redictale alloing the

anageent to understand the future cash e7#enses and ake the

organisation read+ to overcoe such costs-

ife c+cle costing hel#s to recogni*e and estiate the various costs

involved during the course of the #roduct life c+cle- .his certaint+ allos

organisation to recogni*e the cost #er unit and hen the cost #er unit is

#ro/ected, the organisation can 7 the #rice for the #roduct according tothe #ricing #olic+ of the organisation- .his data hel#s the organisation to


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recogni*e the e7act nuer of #roducts essential to e sold in&order

attain the reakeven #osition- .hese nuers can e reached easil+ ith

the adding of :CP anal+sis into ith the life c+cle cost, hich akes

getting the reakeven sales gures easier-

Q . /rie0! explain the four components of #nvironmental Cost

"anagement. ou are encouraged to use examples to illustrate.

Ans & ;nvironental cost anageent allos usiness to control the

costs connected ith the environental i#act of a co#an+2s usiness

o#erations- .he organisation a+ i#act environent in a nuer of

a+s, including air #ollution, anufacturing eissions, et land i#actand aste dis#osal- ;nvironental costs include #resent and future

environental i#acts co#an+ is res#onsile for and laour costs linked

ith accounting for environental costs- ;0ective control of

environental costs ill increase +our usiness2s overall #rotailit+.

In 1DD8, the International >ederation of Accountants (I>A:) originall+

dened environental anageent accounting as .he anageent of

environental and econoic #erforance through the develo#ent and

i#leentation of a##ro#riate environent&related accounting s+stes

and #ractices- 'hile this a+ include re#orting and auditing in soe

co#anies, environental anageent accounting t+#icall+ involves

lifec+cle costing, full cost accounting, enets assessent, and strategic

#lanning for environental anageent-

2he Four Components of #nvironmental costing are as follows:

E ;nvironental Protection :ost

E ;nvironental A##raisal :ost

E ;nvironental Internal >ailure :ost

E ;nvironental ;7ternal >ailure :ost


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#nvironmental 3rotection Cost 4 ;nvironental #revention cost

includes a set of actions, that ould allo dro##ing or reoving the

astage of resources, ith onl+ o/ective of #rotecting the environent-

;nvironent Protection cost also includes the cost of re&designing the#roduction #rocess to increase the e0ectiveness and decrease the

astage of resources- .he cost occurred in i#roving the ualit+ of ra

aterials to i#rove the hole #roduction #rocess and encourage higher

#roductivit+-

#xample: sing rell :artridges in #lace of use and thro cartridges, as

rell cartridges can e re&used and relling cost of cartridge is reasonal+

lo than u+ing a ne one- .he cost of dis#osing the cartridge can e

reoved using rell cartridges- .he initial :ost involved in u+ing a

rellale cartridge could e ore than the use and thro cartridge ut on

the long run, reusale cartridge can e considered as etter investents-

#nvironmental 'ppraisal Cost 4.hese are cost include in safeguarding

that co#an+ added to the rules and regulations of the land- .he cost

includes ins#ecting the #roduction #rocess and the #roduct itself,#erforing several ualit+ and safet+ tests and conring that the

#roduct and the #roduction #rocess have a negative caron foot#rint.

#xample: :hinese to+s have heav+ etal content, unsafe for children,

this nes has een re#orted in telegra#h, hich states that the children

using these #roducts are in danger of saviour health ha*ards- As a result

of this nes the sale of these #roducts ill coe don draaticall+

es#eciall+ in the ell&develo#ed e7#ort arkets- .he cost linked ith such

sudden decrease in sales and a dro# in arket sales ould a0ect the ver+

survival of the co#anies, ho #roduce and arket the- .he

environental cost of checking the ualit+ of ra aterial and the ualit+

of #roducts ill e far less than the actual cost the co#an+ has to su0er

in case of sudden dro# in sales volue and arket share-

#nvironmental nternal Failure cost 4;nvironental internal failure

cost is a set of cost related ith storage and dis#osal of aste linked ith


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the #roduction activities- .he cost involved in the #roduction cost to

reove and rec+cle aste in order to increase the e=cienc+ of the

#roduction #rocess is rather less hen co#ared to the cost of storing

and dis#osing aste aterials-

#xample: I#roving the #roduction s+ste and rec+cling the ater can

save usiness enorous aount of cost that otherise have occurred

hen usiness u+s ater fro the res#ectiveauthorities at doule the

#rice given usuall+ to the coon #ulic and the cost that a+ arise in

the for of governent #enalties and court ruling hen the usiness

rongl+ dis#oses the aste ater ithout treating it- A recent stud+ has

found that #eo#le choose to u+ goods fro a sociall+ coitted green

enter#rise rather than an organisation that constantl+ reaks las-

#nvironmental external failure cost 4 ;nvironental e7ternal failure

cost is the cost related ith the correcting the cause and e0ects of the

nuerous containations that have een du#ed into the societ+- .he

cost associated ith i#roving e0ectiveness of the overall #roduction

s+ste, checking the standards, #ro#er aintenance, standardisingsu##l+ chain right fro #icking the highest ualit+ ra aterials to

rec+cling of #roduct ill e uch less hen co#ared to the cost of

correcting the daages caused due to the du#ing of these aste in the

#ulic doain-

#xample In case of BP oil s#ill in the @ulf of Me7ico, the co#an+ as

forced to #a+ ne of $ illion F as co#ensation for cleaning the oil fro

the sea and for the #eranent and te#orar+ daage caused to the

environent as a hole- .he reason for the leak as #er BP anal+sis is that,

the ualit+ of ceent as not u#&to the ark, neither as the ualit+ of

construction as a result oil started leaking through the deciencies of the

orehole seal- .he echanical valve used to sto# the oil ?o as fault+,

these is the cause of value failure of the #rocureent #rocess-

Misinter#retation of #ressure test cou#led ith no gas alar to send the

arning ells in ties of leakage, along ith other factors contriuted to


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such a disaster in such assive scale- .hese iss anageents could

have easil+ avoided and the cost involved for the sae ould have een

far less hen co#ared ith the co#ensation BP has #aid for cleaning

the oil s#ill-

5.#xplain the /alance 6corecard model and discuss the

contriutions that it has made to management accounting.

Ans & .he Balanced 9corecard as develo#ed in the earl+ 1DDs at the

Harvard Business 9chool + "oert Ga#lan and


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later nd other su##liers that ill eet their needs- Poor

#erforance fro this #ers#ective is thus a leading sign of future

decline, even though the #resent nancial re#resentation a+ look

good- In evolving etrics for satisfaction, custoers ust ee7ained in ters of kinds of custoers and the kinds of #rocesses

for hich e are #roviding a #roduct or service to those custoer

grou#s-

J- /usiness 3rocess 3erspective:& Business Process #ers#ective

relates to internal usiness #rocesses- Metrics ased on this

#ers#ective allos the anagers to kno ho ell their usiness is

going on, and hether its #roducts and services t in to custoerreuireents- .hese etrics have to e cautiousl+ designed +

those ho kno these #rocesses ver+ ell- In addition to the

strategic anageent #rocess, to kinds of usiness #rocesses can

e recogni*ed, ission&oriented #rocesses, and su##ort #rocesses-

Mission&oriented #rocesses are the distinct functions of governent

o=ces, and an+ uniue #roles are stule u#on in these

#rocesses- .he su##ort #rocesses are ore tedious in nature, andhence easier to easure and enchark using general etrics-

4- ,earning and 7rowth 3erspective:& earning and @roth

#ers#ective co#rises of e#lo+ee training and cor#orate cultural

attitudes linked to oth individual and cor#orate self&i#roveents-

In a knoledge ased organi*ation, e#lo+ees are the i#ortant

resource- In the #resent environent of fast technological

transforation, it is ecoing essential for knoledge orkers to e

in a constant learning ode- @overnent agencies often nd

theselves not ca#ale to hire ne technical orkers and at the

sae tie is dis#la+ing a decrease in training of current e#lo+ees-

Ga#lan and orton underlines that 2learning2 is ore than 2training2K

it also includes things like entors and tutors ithin the

organi*ation, as ell as that cofort of counication aong


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orkers that allos the to readil+ get hel# on a #role hen it is

reuired-

"eferences9o#hie Lohnson, rederick Buchan, and Peter ;cono+

fro Balanced 9corecard 9trateg+ >or

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Harshad Banekar - Individual Assignment 2