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Suggested Answer_Syl2016_Jun2017_Paper 20 Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1 FINAL EXAMINATION GROUP - IV (SYLLABUS 2016) SUGGESTED ANSWERS TO QUESTIONS JUNE - 2017 Paper-20 : STRATEGIC PERFORMANCE MANAGEMENT AND BUSINESS VALUATION Time Allowed : 3 Hours Full Marks : 100 The figures in the margin on the right side indicate full marks. This paper has been divided into two Sections, viz., Section A and Section B. Section – A (50 Marks) Answer Question No. 1 which is compulsory and any two from the rest of this Section. 1. Choose the Correct Option from amongst the four alternatives given, with justification/ workings. 1 mark will be for the correct choice and 1 mark will be for the justification/ workings. 2x5=10 (i) Risk Management Strategies are (a) Avoid Risk, Reduce Risk, Retain Risk, Combine Risk (b) Transfer Risk, Share Risk and Hedge Risk (c) Both (a) and (b) (d) None of the above (ii) The necessary condition for equilibrium position of a firm is (a) MC>MR (b) MC> Price (c) MC = MR (d) MC = AC (iii) The Cost function of a firm is given by C = x3 - 4x2 + 7x. Find at what level of output the average cost is minimum and what would be the minimum average cost. (a) 2,3 (b) 4,5 (c) 1,4 (d) None of the above (iv) Which one of the following is not a measure related to Balanced Score Card? (a) Financial (b) Customer Satisfaction (c) Internal Processes (d) Gap Analysis (v) Performance will be a product of (a) Efficiency and Utilization (b) Utilization and Productivity (c) Efficiency and Productivity (d) Efficiency, Utilization and Productivity Answer: 1. (i) (c) Both (a) and (b), since Risk Management strategies covers all points under both a and b. (ii) (c) MC=MR, since this is the right option.
Suggested Answer_Syl2016_Jun2017_Paper 20 Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 2 (iii) (a) 2,3 Total Cost = x3-4x2+7x Average Cost = x2-4x+7 In order that average cost is minimum, dy/dx =0 and the value of d2y/dx2 should be positive. dy/dx = 2x-4=0 or x-2 =0 or x=2.(Ans.) d2y/dx2 =2, which is positive, so that the function will have minimum values. Minimum: Average Cost = x 2-4x+7= 4-(4x2) +7 =4-8+7 =3(Ans.) (iv) (d) Gap Analysis, since Balance Scorecard is not concerned with Gap Analysis. (v) (d) Efficiency, Utilization & Productivity, since this option fully covers all aspects of Performance. 2. (a) What do you mean by 'Customer Relationship Management' (CRM)? List the advantages and benefits of 'Customer Relationship Management'. 4+6=10 (b) What is 'Bench Marking'? Describe briefly the different types of 'Bench Marking'.2+8=10 Answer: 2. (a) Customer Relationship Management (CRM): It is a business strategy comprised of process, organizational and technical change whereby a company seeks to better manage its enterprise around its customer behaviours. It entails acquiring and deploying knowledge about customers and using this information across the various customers touch points to increase revenue and achieve cost reduction through operational efficiencies. The adoption of CRM is being fuelled by recognition that long-term relationships with customers are one of the most important assets of an organization. CRM entails all aspects of interaction that a company has with its customer, whether it is sales or service related. CRM is often thought of as business strategy that enables businesses to:  Understand the customer  Retain customers through better customer experience  Attract new customer  Win new clients and contracts  Increase profitability  Decrease customer management costs. CRM is an integrated approach to identifying, acquiring and retaining customers. By enabling organizations to manage and coordinate customer interactions across multiple channels, departments, lines of business and geographies, CRM helps organizations maximize the value of every customer interaction and drive superior corporate performance. Advantages and benefits of CRM: The following are some of the advantages and benefits of CRM:  satisfied customer does not consider leaving  Product Development can be defined according to current customer needs  a rapid increase in quality of products and services.  the ability to sell more products  optimization of communication costs  trouble-free run of business processes
Suggested Answer_Syl2016_Jun2017_Paper 20 Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 3  fast and reliable predictions  increase effectiveness of team work  increase in staff motivation  real time access to information  more time for customers  better communication between Marketing, Sales and Services. (b) The practice of setting targets, using external information is known as "Bench marking". Bench marking is the establishment of targets, with which performance is sought to be assessed. It is a continuous process of enlisting the best practices in the world for the process, goals and objectives, leading to world-class levels of achievement. Bench marking implies that there is 'one-best-way-of doing business and orients the firm accordingly. Types of Bench marking: The different types of Bench marking are: (i) Product Benchmarking/Reverse Engineering (ii) Competitive Benchmarking (iii) Process Benchmarking (iv) Internal Benchmarking (v) Strategic Benchmarking (vi) Global Benchmarking (i) Product Benchmarking (Reverse Engineering'): It is an age old practice of product oriented reverse engineering. Every organization buys its rival's products and tears down to find out how the features and performances etc., compare with its products. This could be the starting point for improvement. (ii) Competitive Benchmarking: This has moved beyond product-oriented comparisons to include comparisons of process with those of competitors. In this type, the process studied may include marketing, finance, HR, R&D etc. (iii) Process Benchmarking: It is the activity of measuring discrete performance and functionality against organization through performance in excellent analogous business process e.g. for supply chain management - the best practice would be that of Mumbai Dubbawallas. (iv) Internal Benchmarking: It is an application of process benchmarking, within an organization by comparing the performance of similar business units or business process. (v) Strategic Benchmarking: It differs from operational benchmarking in its scope. It helps to develop a vision of the changed organizations. It will develop core competencies that will help sustained competitive advantage. (vi) Global Benchmarking: It is an extension of Strategic Benchmarking to include benchmarking partners on a global scale. E.g. Ford Co. of USA benchmarked its A/c payable functions with that of Mazda in Japan and found to its astonishment that the entire function, was managed by 5 persons as against 500 in Ford. 3. (a) The Cost Function of a particular firm is C = ( 1 3 ) x3 - 5x2 + 75x + 10. (i) Find at which level the Marginal Cost attains its minimum. (ii) What is the marginal cost at this level? 4+4=8. (b) Following is the extract of a Balance Sheet of a company as on 31st March, 2017: Liabilities ` Assets ` Equity Share Capital (` 100) 4,00,000 Fixed Assets 10,00,000 Reserves & Surplus 2,25,000 Trade Investment 2,00,000 12% Debentures 3,00,000 Stock 1,25,000 10% Bank Loan 2,00,000 Debtors 75,000 Current Liabilities 3,00,000 Preliminary Expenses 25,000