advertisement

Abramscompany

52 %
48 %
advertisement
Information about Abramscompany
Education

Published on March 12, 2014

Author: ranni94

Source: slideshare.net

Description

spm
advertisement

ABRAMS COMAPANY Prepared by: Milan Padariya, 63-MBA(Pharma) Page 1 CASE 5-4 ABRAMS COMPANY Que. 1: Evaluate each of the concerns expressed by top management, and if necessary, make recommendation appropriate to the circumtences described in the case The Abrams case is about using profitability measures to evaluate profit centers. The case also reflects a long academic debate in the US-literature about ROI problems. In EU companies it is more common to evaluate PCs with Income measures like RI and EVA. This case covers the tree main problems in controlling profit centers: 1. The ROI behavior 2. Transfer pricing disputes 3. Operational trouble shouting It is very difficult to find a relevant and fair capital base for the ROI measure. Abrams use book value for fixed assets which inflate the ROI measure as the assets age. The age and mix of assets also differs among divisions which give unfair measures. It is also easy for the divisions to manipulate the capital base at the end of the year. ROI based bonus may rob the future, who want to invest in assets if that reduce the bonus. I recommend this company to use RI or EVA instead of ROI and to control the investments separately using NPV and capital turnover measures. The bonus should be based on the budgeted income level, the RI target. The problem with the inventory level can not be controlled with ROI management. If the company change to RI/EVA it will be possible to to negotiate relevant inventory levels in the budget process. High inventory levels can also be managed with differentiated capital charges

ABRAMS COMAPANY Prepared by: Milan Padariya, 63-MBA(Pharma) Page 2 that will create high interest costs. The best way to control operational tasks is to us non financial measures such as inventory turnover. Use non financial measures to control the inventory levels. If it is an strategic issue you can connect this measure to the bonus system. Que. 2: What is overall evaluation of Abrams management control system? Describe any strength or weakness that you identified but did not include in answering the previous question. What changes, if any, would you recommend to top management? In general, Abrams Company adopts the lowest cost, differentiation, market focus and ROI strategies to accomplish the organization’s goal. Furthermore, In order to implement the strategies the firm establishes its own management control systems. Evaluation of Abrams’ Management Control System: The current measurement system of the company is ROI. The ROI target is set based on budget profit divided by actual beginning of the year net assets. Actual ROI is calculating by actual profit divided by actual beginning of the year net asset. The advantage of the Abrams Company ROI system is it does not consider the investment added during the year, because the investments provide little effort to the year, but more benefit to the future. However, the ROI measurement system has some weakness, such as defer asset replacement, short-term focus at the expense of long-term. The incentive compensation plan of Abrams Company is bonus plan, and it calculate accurately based on an equation, and it seems equal for all members. In addition, some adjustments also are made associate with the performance of the managers. The performance is measured by compare of actual profit and budget profit. However, all the measurement is

ABRAMS COMAPANY Prepared by: Milan Padariya, 63-MBA(Pharma) Page 3 associate with data, sometimes the performance will be influence 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. The dollar amount of corporate bonus pool was established by a fixed formula linked to company earning per share. This incentive compensation plan can be considered as a reward system. Using this method the company can increase or maintain motivation. STRENGTH : -The company has a clear management structure. -The company has employed a bonus plan for employees. -The AM Marketing division will input products form the other three 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 totally independent divisions, and the three divisions are lack of connection. They purchase their materials separately, and they carried excessive inventories most of the year. Also, inside sales sometimes need a negotiation on price, the may lead to low productivity. SUGGESTIONS TO PERFORMANCE MEASUREMENT SYSTEM: 1) ROI: can be used combination with other performance measures to avoid the limitations of ROI. The company can establish a non-financial performance measurement system such as the balanced scorecard .With a good performance measurement system, the incentive compensation plan will be improved. (2) EVA ( Economic value added): can be used instead of ROI Suggestions to transfer pricing… A transfer price fixed by the top management in compliance with the AM division and the other divisions involved which could be revised when it is out of date. This fixed price

ABRAMS COMAPANY Prepared by: Milan Padariya, 63-MBA(Pharma) Page 4 could be adjusted due to inflation. There should be an internal policy on it. Therefore, top management should implement a cost-based transfer prices because when competitive prices are not available, transfer prices may be set on the basis of cost plus a profit markup. RECOMMENDATION: 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.

Add a comment

Related presentations

Related pages

Abrams & Company - Asset Based Financial Services

For more than 75 years, Abrams & Company has specialized in providing asset based loans to companies in the manufacturing, importing, and distribution ...
Read more

About Abrams & Company

For more than 75 years, Abrams & Company, Inc. has provided small and middle market companies with access to the funding they need to grow their businesses.
Read more

A.J. Abrams Company | SAFETY & ENVIRONMENTAL MONITORING

A. J. Abrams Company was originally founded in 1970 by Art Abrams. Art was known for having played a key role in working with manufacturers during the ...
Read more

Abrams Company - Scribd - Read books, audiobooks, and more

Abrams Company - Free download as Powerpoint Presentation (.ppt), PDF File (.pdf), Text File (.txt) or view presentation slides online.
Read more

Abrams Learning Trends | Little Learners, Big Learning

Abrams Learning Trends Mission. Abrams Learning Trends, based in Austin, Texas, was founded in 2008 when Abrams & Company Publishers, Inc. was acquired by ...
Read more

Abrams & Co. Chartered Accountant - About Us

Abrams & Company Chartered Accountant Licensed Public Accountant 207 - 33 Roydon Place Ottawa, ON K2E 1A3
Read more

ABRAMS COMPANY - Prezi by Ashish Menon on Prezi

Management Control System Abrams Company Overview Question 2. What is your overall evaluation of Abrams management control system? Describe any strength or ...
Read more

Jerry D. Abrams Company Inc. - Facebook

Jerry D. Abrams Company Inc., Richland, WA. 108 likes · 6 talking about this · 7 were here. "We are a full-service Commercial Property Management Company...
Read more

L. Abrams & Company LLC

Grow Your Business with L. Abrams & Co. L. Abrams & Company, LLC is a resource to clients for the enhancement of their business experience. Several ...
Read more

Abrams Company | LinkedIn

Learn about working at Abrams Company. Join LinkedIn today for free. See who you know at Abrams Company, leverage your professional network, and get hired.
Read more