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MCS
Is the process of evaluating, monitoring and controlling the various sub-units of the organization so that there is effective and efficient allocation and utilization of resources in achieving the predetermined goals.
Meaning
Investment center have some problem regarding how to measure the assets employed they have to decide the assets to be included, the value of fixed assets as well as current assets , the depreciation method to be used for fixed assets and which assets to be allocated and which liabilities are to be allocated.
INTRODUCTION
In some business units, the main focus is on profit. In other business unit, profit is compared with the assets employed.
However, there are so many problems involved in measuring the assets employed in a profit centre.
To provide information that is useful in making decision about assets employed To motivate managers to make these decision that are in the best interest in the company. To measure the performance of the business unit.
Return on Investment ( ROI ) ROI is a ratio. The numerator is income, as reported on the income statement. The denominator is assets employed. Economic Value Added EVA is a amount, rather than a ratio. It is found by subtracting a capital charge from the net operating profit. This capital charge is found multiplying the amount of assets employed by a rate.
EVA is conceptually superior to ROI. It is clear from surveys that ROI is more widely used in a business rather than EVA.
1. Comprehensive measure in that anything that affects financial statements is reflected in this ratio.
2. It is simple to calculate, easy to understand, and meaningful sense. 3. It is a common denominator that may be applied to any organizational unit responsible for profitability, regardless of size or type of business.
APPLICATION OF MCS
SERVICE ORGANIZATION PROPRIETARY ORGANIZATION
SERVICE ORGANIZATION
Service sector organization are those organization which provide services to the member and the society. The organization that produce and market intangible service are also known as service organizations. E.g. Hospitals, Hotels, etc
Strategic planning Budget preparation Analyzing financial performance reports Performance measurement
PROPRIETARY ORGANIZATION
Proprietary organization are those organizations which run or operated by Single person or Group of persons.
Operation control
Performance measurement