Case Solution on Abrasm Company

&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- A &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Case work &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- On ABRAMS COMPANY &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Of &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Management jibe musical arrangement &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Presented to Presented by &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- DR B. A.Prajapati ModiRashmi S. (24) &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- MeghaniShital L. (20) &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Trada Lalit V. (60) &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- RajdevBrijesh (46) &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Ozha Sandip (47) &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212 Batch 2010-12 &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- rough The troupe &8212&8212&8212&8212&8212&82 12&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- US guild &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Manufacturing automobile split &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Selling in domesticated as well as foreign Market &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Most of the Products related with. &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212 Automobiles &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Trucks& international international adenineereere Buses &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Farm Equipments &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Product & market cleavage &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Production Division * &8212&8212&8212&821 2&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- federation works on Three Parts. 1. &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- firing off Parts 2. &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- transmitting Parts. 3. &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- locomotive engine Parts. &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Marketing Division * &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- Selling Through two Department. 1. &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- O. E. M. department. 2. &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- A. M. department. &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- testify 1 &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8 212&8212&8212&8212- Partial Organization chart &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212-Inside & Outside sales In 1992 * nub sales $500 one billion million Inside sales (to AM div) $ degree centigrade million Outside gross sales (to OEM)- $ cd million * Ignition parts sales- $130million * Engine parts sales- $90million * Transmission parts sales $100million * AM Division sales- $180 million ROI for the Manufacturing devisets * to each one Plant has to meet targeted ROI. ROI = Budgeted advance Actual beginning-of-the -year net assets Where Budgeted Profit =( anticipate Revenue- allocated O/H- tax) Actual beginning-of-the-year net assets = heart assets-current liabilities. Actual 1992 ROI computation- Rochester Plant Abrams company Transmission PartsDivision ROCHESTER PLANT Profit & ROI Statement,Dec 31,1992 Sales revenue$124,866 COGS. 73230 Gross Margin.. 51636 operating(a) expenses.. 20792 Division Expenses designate.. 11340 corporate expenses assigned. 3420 Profit before taxes. 16084 Taxes Imputed.. 4825 Profit.. $11259 * scratch Assets Assigned as of January 1,1992 Total Assets cash & receivable. $25000 Inventories 12875 Property, fancyt & equipment at book value. 86560 Total Assets .. 124435Less current liabilities. 26135 scratch Assets.. $98300 ROI = Profit / Net Assets = $11259/ 98300 =11. 45% Suggestions to correct evaluation organisation * ROI can be used combine with other exercise measures-balanced set of coarse term/short term monetary/non-fiscal * EVA can be used sooner of ROI. Marketing Strategies * Top Management find out OEM & AM different. * Each parts? OEM sales have to meet an annual Sales Revenue. * The OEM department have to. 1. derogate inventories. 2. Control cost. * AM has to concentrate on avai lability of Parts. Incentive earnings Plan Appropriate 50 line & staff managers under plan. * Bonus touchn(p) on basis of furbish up formula. * Each participant get support on standard bonus point(SBP). * SBP based on hierarchical position. warning dollar accolade per point (SDAP) = essence of SBP of all participants total bonus pool amount Standard Bonus in $ = Standard horse ? Standard Bonus Point accord per point. of Participant. if Actual Profit 4% more(prenominal)(prenominal) than budgeted, Manager get 25% more standard bonus. Evaluation of incentive compensation plan * The performance is measured by compare of actual profit and budget profit. All the criterion is associate with data, sometimes the performance will be limit by variance elements, such as, scotch environment, the demand level, material price, cost of labor, and political science policy, so the measurement need to improve in some areas. Suggestions * The non-financial performance measurement sys tem should be established. * The balanced placard 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 * about dispute over transfer pricing. twist with AM division on placing pasture of parts. * All divisions using too much inventories. Question- 1 Evaluate each of the concerns denotative by top counseling, & if necessary, bring on recommendations appropriate to the circumstances described in the case. Ans-1 * Management has 3 main problems 1. ROI Behavior. 2. canalize Price disputes 3. Operational trouble shouting. Recommendations * fraternity should use EVA rather than ROI. * corporation should accommodate the investments separately using NPV and capital turnover rate measures. * Bonus should be based on the budgeted income level. * Company should change the TP method. It will give all internal partners full entropy about the cost struct ure and company will avoid upstream fixed costs. Question- 2 What is your overall evaluation of Abrams? management hold in system ? come across strengths or weakness that you identified moreover did not include in answer the previous 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 go steady inventory level. Strength * The company has a clear management structure. * The company has engaged a bonus plan for employees. The AM Marketing division will excitant products form the other common chord divisions, and handle it to domestic and foreign market, it helps the company economise cost when it input internal. Weakness * The Abrams Company has three totally independent divisions, and the three divisions are lack of connection. * The transactions among the three divisions dispute the transfer pricing. * OEM customers preferred than AM. Suggestions * Top man agement should try to control inventory level. * Company should use non financial measures like inventory turnover. * If it is an strategic comeback company should connect this measure to the bonus system.