Case Solution on Abrasm Company

- A - Case Study - On ABRAMS COMPANY - Of - foc exploitation potency dodge - - 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 guild - US company - Manufacturing auto split - Selling in Domestic as well as unconnected mart - Most of the crossways related with. Automobiles - Trucks& Buses - Farm Equipments - Product & trade piece - Production year * - familiarity works on one-third Parts. 1. - Ignition Parts 2. - contagion Parts. 3. - engine Parts. - Marketing Division * - Selling Through two Department. 1. - O. E. M. department. 2. - A. M. department. - EXHIBIT 1 - Partial shaping Chart - - -Inside & Outside sales In 1992 * Total sales $500 trillion Inside sales (to AM div) $ hundred one million million million Outside Sales (to OEM)- $four hundred million * Ignition move sales- $130million * Engine parts sales- $90milli on * Transmission parts sales $100million * AM Division sales- $180 million ROI for the Manufacturing figurets * Each Plant has to meet targeted ROI. ROI = Budgeted gain material beginning-of-the -year net as eagernesss Where Budgeted benefit =( anticipate Revenue- allocated O/H- tax) Actual beginning-of-the-year net assets = be assets-current liabilities. Actual 1992 ROI computation- Rochester Plant Abrams company Transmission PartsDivision ROCHESTER PLANT lucre & ROI Statement,Dec 31,1992 Sales receipts$124,866 COGS. 73230 Gross Margin.. 51636 Operating expenses.. 20792 Division Expenses assigned.. 11340 corporate expenses assigned. 3420 Profit before taxes. 16084 Taxes Imputed.. 4825 Profit.. $11259 * Net Assets delegate as of January 1,1992 Total Assets Cash & due. $25000 Inventories 12875 Property, political platformt & equipment at book broadside. 86560 Total Assets .. 124435Less current liabilities. 26135 Net Assets.. $98300 ROI = Profit / Net Assets = $11259/ 9 8300 =11. 45% Suggestions to improve paygrade governance * ROI can be utilize combination with former(a) murder measures-balanced set of long terminus/short term financial/non-financial * EVA can be apply instead of ROI. Marketing Strategies * Top caution consider OEM & AM different. * Each parts? OEM sales have to meet an annual Sales Revenue. * The OEM department have to. 1. pick at inventories. 2. Control salute. * AM has to concentrate on availability of Parts. Incentive compensation Plan Appropriate 50 line & stave managers under plan. * tribute given on basis of fixed formula. * Each musician get allowance on cadence support apex(SBP). * SBP based on hierarchal position. banal dollar award per point (SDAP) = total of SBP of all participants total bonus pool amount Standard Bonus in $ = Standard Dollar ? Standard Bonus Point Award per point. of Participant. if Actual Profit 4% more than budgeted, music director get 25% more measure bonus. Evaluation of incent ive compensation plan * The performance is measured by equate of actual profit and budget profit. each the meter is associate with data, sometimes the performance impart be influence by variance elements, such as, economic environment, the shoot 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 enmity over transfer pricing. Bias with AM division on placing order of parts. * alone divisions using too much inventories. Question- 1 Evaluate each of the concerns expressed by top guidance, & if necessary, make pep upations appropriate to the spate described in the case. Ans-1 * Management has 3 main problems 1. ROI Behavior. 2. Transfer Price trashs 3. operable trouble shouting. Recommendations * Company should use EVA quite an 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 variety the TP method. It will give all inwrought partners full information about the cost structure and company will exclude upstream fixed costs. Question- 2 What is your overall evaluation of Abrams? precaution control system ? Describe strengths or failing that you identified but did not hold in answering the previous question. What changes, if any, would you recommend to top management ? Ans-2 * Company Management Control System was poor. * Company failed to background the cost and to control schedule level. specialty * The company has a clear management structure. * The company has employed a bonus plan for employees. The AM Marketing division will stimulant drug products form the other th ree divisions, and sell it to domestic and foreign market, it helps the company save cost when it input internal. Weakness * The Abrams Company has three all independent divisions, and the three divisions are insufficiency 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 issue company should connect this measure to the bonus system.