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batak prince

on 31 October 2014

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Transcript of ABRAMS COMPANY

Management Control System
Abrams Company’s Overview
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?
1. Case summary
Abrams Company’s Strategy
Several profit centers were created inside Abrams
Abrams sold its products by doing inside and outside sales
Targeting its sales majority to AM Marketing Division (up to 50% from total sales)
Annual ROI target based on actual profit divided by actual beginning-of-the-year net assets
The company has a clear management structure
The company has employed a bonus plan for employees
The company has many divisions with different product and sales department separetly

Answer (con't)
Compansation base on ROI
Business Unit as a Profit Center – conflict decentralize
Suggestion to performance maesurement system:
Combination with non-financial performance measurement system such as the balanced scorecard
Standardize accounting metode
by : Group 2

Duhita Anggi Pinasthika
Ferancis Leonardo Samosir
Hanur Putro Adhianto
1. Case Summary
2. Main Issue
3. Problem Analysis
4. Recommendation
5. Discussion
Abrams company is manufacturer a wide variety parts for use in automobiles, trucks, buses, and farm equipment
Abrams consists of three major group of parts:
Ignition parts
Transmission parts
Engine parts
Abrams sold its products to:
Original equipment manufacturer (OEM)
Manufactured parts were sold by :
OEM sales department
AM Marketing
Abrams Company’s Overview
Inside and Outside Sales (1992)
Return on Investment (ROI)
Abrams must be able to design innovative and dependable parts that met the customer’s :
Weight performance
Meeting delivery schedule requirements
The dollar amount of the corporate wide bonus pool was established by a fixed formula linked to corporate earnings per share
Abrams Company’s Strategy
2. Abrams's managemement issues?
Evaluate each of the concerns expressed by top management, and if necessary, make recommendation appropriate to the circumtences described in the case
discussion time!!!

Incentive Compensation Plan
Many disputes over transfer price of parts sold by the product divisions to the AM division
problem 1
Every division want to make profit and focus only on their profit (profit competition).
Ignition, Transmission, and Engine parts division prefer seel their product to OEM because they can get more profit and incentive.
AM's sales target 50% from outside sales.
Abrams Company decide
tranfers price
from Ignition, Transmission, and Engine parts division AM
The price for AM is cheaper than they sell to OEM so AM can make margin.
The transfer price must be updated every year with observe the inflation and price market.
AM division treated as captive customer by other divisions
problem 2
Ignition, Transmission, and Engine parts division can sell to OEM and AM, but AM only can sell to OEM and cant sell other product except from the company
the insentive programs makes Ignition, Transmission, and Engine parts division prefer sell their product to OEM
Ignition, Transmission, and Engine parts division has target how many product they have to sell to AM.
incentive compensation plan must be revised, Management should be give more incentive to 3 division selling product to AM than to OEM, so AM can sell more product and reach their target
Always innovative using latest technology and improve Quality of product so can compete with other competitor.
Make a good Marketing Concepts so can improve the sales.
Have a good inventory management. Implement Just In Time (JIT) Inventory Management. The Inventory level must be maintained at its optimum level without many safety stock and implement zero-level-stock if possible
Calculating inventory turnover, EOQ (economic order quantity), and reorder point.
Excessive inventories of Abrams parts product
problem 3
Product cannot competitive with other competitors
Company only calculating ROI from begining-of-year with end-year profit is not good.
Many inventory stack at end of year, the production management wrong
Full transcript