Professional Documents
Culture Documents
1.1. Introduction:
Management is a problem solving process of effectively achieving organized society
objectives through the use of resources in a changing environment. The concept of management
as old as human race itself. Even in our olden age, we have been followed the management
technique. The hunting of animals, where to go and whom to go, etc are the examples of
management. The management technique has adopted before 3000 B.C. for the construction of
Egypt pyramid. It was done by an organized society of more than 100, 000 people. So it is
difficult to find the age of management. Management is a crucial factor in economic and social
development. Economist’s traditional point of view for the development of nation as a function
of savings and capital investment. But savings and capital investment do not produce
management and social development. On the contrary, management produces economic and
social development with its savings and capital investment. For the past one century, the debate
is going on ‘whether management is an art or science?
Is it an art which depends upon skill, is it a science which depends upon analysis. Management is
the oldest of arts and youngest of sciences.
Art: According to J.Paul Getty, management can not be systemized and or practiced according
to a formula. There fore management is an art, particularly a creative art. More over you can not
be trained to become a painter or poet.
Science: science is a systematic knowledge which explains the cause and effect phenomenon
with underlying principles. Management is developed with certain principles, laws and
generalizations which are universal in nature and it can be applied to any business environment.
1.7.4. Characteristics:
• They are composed of people
Failure to act, Delaying in acting, Wrong action, Lack of quantity of effort, Lack of
quality of effort, Waste of effort, Excessive quantity of effort, Excessive quality of effort
1.9. Accident:
An event that takes place all of sudden resulting in something bad is called an accident.
Ex: a house catching fire, electric shock
Effects of an accident:
• Personal effects:
Mentally depression, physically handicapped, loss of earning capacities
• Social effects:
Status may get lost, family humiliation
• Other effects:
Loss of machines, loss of materials, loss of money, capital investment, reputation of
company
Causes of an accident:
• Improper working conditions
• Working methods
• Factors concerning worker
Prevention of accidents:
• Reform of the working conditions
• Provision of safety methods
• Pay attention to individual differences
• Training in right work methods
• Means of removing fatigue
• Proper speed of work
• Safety campaigns and posters
• Motivating safety.
2.2. Definition:
2.2.1. UK Institute of Personnel Management:
Personnel management is that part of management functions which is primarily
concerned with the human relationships with in the organization.
2.2.2. Professor Michael Jucious:
2.7. Training:
It is designed mainly for non-managerial refers to technical and mechanical skills.
Training is a short term process utilizing the systematic and organized procedure by which non-
managerial can learn the technical knowledge and skills for a desire purpose.
According to Planty, McCord and Efferson, the training
• Must be a continuous process.
• Must be aimed at all levels of employee.
• Must give benefits to both employee and organization.
• Must be planned systematically in order to accomplish the desired results efficiently.
Training must be effective,
• When the employee learn under conditions that are identical to the actual conditions.
• When the trainer who is training the employee is made responsible for the process of the
• candidate.
• When it creates self confidence of employee in the organization and desire to do better.
2.13. Objectives:
• To establish correct wage differentials for all jobs.
• To bring new jobs into their relativity with jobs previously established.
• To help authority, responsibility and promotion.
• To provide a base from which individual performance may be measured.
2.20. Uses:
• Improving the employee job performance by pinpointing the areas
• Encouraging the employee to express their views
• Predictor for future responsibilities
• Preventing grievances
• Increasing the analytical ability of supervisors
2.21. Characteristics
• It is bias -free
• Relevant
• It should be reliable, dependable, stable and consistent
• It must be able to differentiate between an effective and an ineffective employee
• It must be practical, sound, clear and unambiguous so that all parties concerned
understand all of its implications.
3.7. Leadership:
Leadership is important and necessary for achieving individual, group and organizational
performance. It is an integral part of management and plays a vital role in managerial operations.
If there is any single factor that differentiates between successful and unsuccessful organizations,
it would be considered as dynamic and effective leadership.
George Terry points out that
'Of everyone hundred new business establishments started approximately 50 or one
half go out of business with in two years. By the end of 5 years, only one third of the original
one hundred will still be in business'. Perhaps it would be a valid assumption to state that the
major cause of these failures would be ineffective leadership.
Definition:
• Leadership is the function of management involving the process of influencing people so
that they will contribute to organization and group goals.
Disadvantages:
• One way communication without feed back leads to misunderstanding
• An autocratic leader makes his own decisions which can be very dangerous.
• It is unsuitable when the workforce is knowledgeable about their jobs.
3.10.2. Participative or democratic leadership:
This type of leadership is effective when the work force is experienced and dedicated and
is able to work independently with least directives. The subordinates are consulted and their feed
back is taken into decision making process. The group members are encouraged to demonstrate
initiative and creativity and take intelligent interest in setting plans and have maximum
participation in decision making. This ensures better management -labour relations, higher
morale and greater job satisfaction.
Advantages:
• Active participation in the management by labour assures rising productivity and
satisfaction.
• This leadership includes confidence, cooperation and loyalty among workers.
Maintenance Management
Machine, building and other service facilities are subject to deterioration due to their use
and exposure to environmental conditions. In industry, there is no choice but to attend to them
from time to time to repair and recondition them so as to elongate their life to the extent.
Machine Management
No live machinery and equipment can keep the advance of technology without
continuous renewal and transformation of its production facilities. If any existing equipment fails
to meet this challenge, it must be displaced, regardless of its age and condition.
4.10 Causes of Machine Management or Need for Machine Management
a. Due to natural wear and tear:
Machinery and equipment wear out, corrode and decay as a result of age and usage. Often this
increases maintenance cost and decreases the quality and reliability of performance.
b. Change in service requirements:
The existing equipment may be inadequate to meet the service requirements such as quality,
productivity etc.
c. Technological obsolescence:
O = T*C*S*I
O – Observed value T – Trend
C – Cyclic variation S – Seasonal variations I – Irregular variations.
II. Selected point method: The common practice is to select the values of the years which are
considered to be most representative or normal. This is not correct method of approximation
selection of determining points is open to objection and difference of opinion.
III. Semi average method: According to this method, the original data are divided into two
equal parts and the values of each part are then summed up and averaged. The average of each
part is centered in the period of the time of the part from which it has been calculated and then
plotted on the graph. A straight line is then drawn to pass through the plotted points. This line
constituted the semi average trend line. When the numbers of years are added, the middle year is
not considered while dividing the data into two equal parts and obtaining average.
Limitations:
It assumes a straight line relationship between plotted points.
It is associated with the defects of arithmetic averages.
IV. Moving average method: A moving average forecast is obtained by summing the data point
over a desired number of past periods increasing the smoothening effect but decreases the
sensitivity of forecasts to more recent data.
Advantages:
Given a very good picture of the general long term movement in data, if the data contains
uniform cycle.
V. Method of least squares: The method of least square is a mathematical device which places
a line through a series plotted points in such a way that squares of deviations of the actual points
above and below the trend line is at minimum. This method gives us what is known as the line of
best fit. In other words, if sum up the positive and negative deviations on either side of the line of
best fit the sum will be zero. This being so sum of the squares of these deviations obtained will
be the least as compared to the sums of the squares of the deviations obtained by using other
lines. It is on account of this fact that this method is known as the method of least squares.
Advantages:
• Free personal prejudice and bias.
• Trend values can be obtained for all the years.
• This method gives the most satisfactory results.
Disadvantages:
• It lacks flexibility of trend fitting. If one more year is added the entire calculations have
to be done again.
Method:
A straight line trend fitted by the method of least squares will be of the general form.
Y=a+bx
Where Y is the dependent variable, such as sales Dollars, sales volume etc.
a and b are constants.
a=ε Y/N
b = ε xy / ε x2
Then
log a = ε (log y) / N
log b = ε (x log y) / ε x2
QUALITY CONTROL
Introduction:
No production process is good enough to produce all items of product exactly alike.
Some variability is unavoidable. The amount of basic variability will depend on production
process such as machine, materials and operations. We all think of quality, we all insist on
quality. When we go to the market to buy any thing we all look for good quality at a reasonable
price. Let us say, if a factory produces, says the cars, which give a lot of trouble and do not run
properly then the car is not fit for use in the real sense or you say the quality of the car is poor.
So, whether it is a product or a service it should be fit for use or should be of good quality.
Generally, Inspection is the process of sorting the good from bad one. But quality control and
inspection are different.
Quality: Product quality is the degree to which the product conforms to the design or
specifications. To closer this conformance, the higher the degree of quality. Conversely, if the
product deviates from design specification, then the output is of poor quality.
Juran defines: The product quality is the degree to which the product satisfies the wants of a
customer.
Objectives:
• Establish acceptable standards of performance of the product.
• Establish the manufacturing process and suggest, if any changes or modifications are
necessary to maintain the quality or improve it.
• Indicative of any variations in raw material that form the input as well as in production
process.
• Provide assurances to the customer about the proper performance of the product in the
form of guarantees and warrantees.
CHAPTER – VI
PRINCIPLES OF ACCOUNTING
Introduction
World’s most of the work is done through – organization (A group of people who joined
together to achieve one or more objectives). Organizations are classified into two categories i.e.
profit and non-profit organizations. All private sector companies are profit oriented. The
companies like government organizations, social service activities, and Red Cross societies are
non-profit organizations. An organization uses resources – material, machine, man building etc.
and these resources need to be financed i.e. this to be paid. To work effectively, the people in an
organization need information about the amounts of these resources, the means of financing
them. Parties outside the organization need the same information to make judgments about the
organization. Therefore, accounting is a system that provides such information.
Definition
The process of identifying, measuring, communicating economic information to permit
informed judgments and decisions by the user of the information.
Type of information
Information is classified into two categories i.e. non quantitative and quantitative
information. Non quantitative information is not related to numerical values. It concerns with
visual aid, television, radio, news paper etc. quantitative information is related to numerical
values. This quantitative information is further classified into accounting and non accounting
information.
Accounting information is classified into
1. Operating information
2. Financial accounting information
3. Management accounting information
1. Operating information
It provides the basic data for both management accounting and financial accounting. It
has large quantity of information. A considerable amount of operating information is required to
conduct an organization’s day –to-day activities. Ex: salary, deductions, pay roll records, stock
room details – aware of spare parts, amount owned by the company’s customers need to be
known.
2. Financial accounting information
It is intended both for managers and for the use of parties external to the organization,
including shareholders, bankers and other creditors, government agencies etc. If the company
wants to borrow money, the bank or other lender wants information that will show that the
company is sound and that there is a high probability that the loan will be repaid.
3. Management accounting information
The accounting information specially prepared to aid manager is called management
accounting information. It consists of Planning, Implementation and Control.
Accounting principles
Going – Concern
• It is not possible to determine in advance the life span of a business unit and hence an
assumption must be made.
Accounting period
• It is the period for which a business unit prepares its accounts. This concept arises from
going concern concept.
• This concept requires that the life span of the business unit should be segregated into
equal parts. Therefore, this concept is the consistency of accounting periods.
• According to this concept, a profit and loss account and a balance sheet shold be prepared
at regular intervals to ascertain profit and loss and financial position of the business unit.
Longest accounting period is one year.
• The main difficulty is that what revenues and what expenses are to be taken into
consideration for one accounting period.
Duality
• This concept expresses the relationship that exists among assets, liabilities and the capital
in the form of an accounting equation which is expressed as
Assets – liabilities = capital
Historical cost
This concept is an idea about the basis on which assets should be valued in the amount
that way paid for them. This concept provides uniformity in accounting records under conditions
of stable prices.
Conservatism
Managers are human beings. Like most humans, they would like to give a favorable
report on how well the entity for which they are responsible has performed. The idea behind
these principles is that recognition of increases in an entity’s retained earnings (i.e. revenues)
requires better evidence than does recognition of decreases (i.e. expenses). This is the
conservatism concept. The conservatism concept has two aspects
• Recognize revenues (i.e. increases in retained earnings) only when they are reasonably
certain.
• Recognize expenses (i.e. decreases in retained earnings) as soon as they are reasonably
possible.
There are obvious problems in deciding what is meant by “reasonably certain” and “reasonably
possible” in various situations, and accounting principles give guidance for many specific
problems. For example, the principle that revenue is recognized in the period in which goods are
delivered applies to most sales transactions, because this is the earliest period in which it is
reasonably certain that revenue has been earned.
Matching
• This concept requires proper allocation of costs into different accounting period so that
relevant incomes and expenses are matched.
• According to this concept, the expenses for an accounting period are matched against
related incomes, rather than comparing cash received and cash payments.
• Therefore, it is necessary that the accounting system periodically should match the
revenues earned against expenses incurred.
Materiality
• Materiality means that the time and money should not be wasted. Transaction is recorded
on the basis of its relative importance and its relevance
• Accountants do not record these transactions which are insignificant and recording these
would create problems than solutions. Instead, it is written as expenses when it was
prepared.
Consistency
• It is the conformity from period to period with unchanging policies and procedures.
Accounting principles are not static or unchanging.
• Though consistency is important for good accounting practice, this does not mean that
changes cannot be made in a business unit’s accounts.
4.1. Introduction
The word 'cost' has different meanings in different situations. The accounting cost
concept or the historical cost concept is not useful for any business decision making. The
decision making concepts of cost aim at projecting what will happen in the alternative course of
action. Business decisions plans for the future and require choices among different plans. A
managerial economist must have a proper understanding of the different cost concepts which are
essential for clear business thinking.
d. Historical costs:
It is the original cost of an asset. It shows the cost of an asset as the original price paid for
the asset acquired in the past. For example, during the period of substantial change in the price
level, historical valuation gives a poor projection of the future cost intended for managerial
decision.
e. Short run and long run costs:
Short run is a period during which the physical capacity of the firm remains fixed. An
increase in output during this period is possible only by using the existing physical capacity more
intensively. It is also called as variable costs. Short run cost concept helps the manager to take
decisions when a firm has to decide whether to produce more or to produce less with existing
plant.
Long run is a period during which it is possible to change the firms' physical capacity. All
inputs are variable in the long run which vary with outputs.
3. Contribution:
It is the difference between selling price and marginal cost.
Contribution = Selling Price -Marginal cost = Fixed Cost + Profit.
contributi on
4. Profit -Volume ratio (P/V ratio) = ×100
sales
fixed cos t
5. Break -even sales = p / v ratio
FC + Desired Profit
6. To earn desired amount of profit in units =
P / V Ratio
Y
TR
TFC
X (Unit of Output)
An out put level of 50 units TR is equal to TC; it is the break even point. It can be drawn
in the chart. The OX axis shows the units of output and OY axis shows the costs and revenue.
Fixed cost (TFC) line is parallel to OX axis. This shows that the fixed cost is the same Br .50
even when the production is zero unit or ten units or hundred units. The variable cost line is
drawn over the fixed cost line starting from Br.50 in the OY axis. As this is drawn over the fixed
cost line this is also called total cost line (TC).
TR line starts from zero and goes upwards showing the increase in revenue with the
increase in sales. The firm breaks even at the point where the TC line and the TR line intersects
i.e. the point B. At this point the firm is not making any profit or loss. Any sales above the point
B will bring in profit and sales below this point will result only in loss.
The line TR intersects the TC line at point B where the out put is equal to 50 units. At an
out put of 50 units the firms total cost equals its total revenue. Below the break even point, total
cost exceeds total revenue representing a loss area. Beyond 50 untis total revenue exceeds total
cost, representing a profit area.
Margin of safety:
The margin of safety is the difference between the actual sales and the sales at the break
even point.
Angle of incidence: