GOOD

AFTERNOON!
GROUP 5
• SALINAS • TOLENTIN
• SISON O
• SORIAN • VALENZUE
O LA
• SUAREZ • VALEROS 1
 LET’S PLAY A
GAME!
4 PICS 1 WORD
&
JUMBLED
WORDS 2
4 PICS 1 WORD

3
 Answer:

CONTROL
4
CONTROLLING
 What is Controlling?

Controlling

❖ is the process of measuring and correcting activities

(plans, organization, personnel, etc.) of an organization.
Controlling determines what is being tackled by
evaluating the performance and, if there is a deviation, by
applying corrective measures so that the activities take
place according to plans.

6
Nature of Controlling

7
❖ In a situation where the other fundamental functions of management are performed
perfectly, controlling is still inevitable, for it is used to further effect some
improvements. There can only be effective controlling if there are the other four
fundamental functions of management.

❖ The failure of controlling would mean failure of planning, and success of planning
means success of controlling. After measuring the plans, and knowing that the
plans are not realistic, a modified or new plan must be formulated.

8
All forms of management controls are designed to give the manager
information regarding progress. The manager can use this information to:

1. Prevent Crises

2. Standardization outputs

3. Appraise employee performance

4. Update plans

5. Protect an organization’s asset

9
Budget Costs: The Basis for
Cost Control
10
 TYPES OF COST AND COMPONENTS

Direct Labor - Wages and salaries of workers who are tngaged in the direct generation
of goods and services. This typically does not include wages and salaries of support or
office personnel
Materials - Cost of materials which become a tangible part of finished goods and
services.
Production overhead-variable - Training new employees, safety training, supervision
and clerical, overtime premium, shift premium, payroll taxes, vacation and holiday,
retirement funds, group insurance, supplies, travel, repairs and maintenance
Production overhead-fixed - Travel, research and development, fuel (coal, gas, or oil),
electricity, water, repairs and maintenance, rent, depreciation, real estate taxes,
insurance
11
 The Control Process
In exercising the control function, a manager measures the
performance of an individual, plans, or programs against their
predetermined standards and take corrective actions if there are any
deviations.
12
 Control involves:

1. Establishing standards

● Standards are desired levels of performance and constitute the foundation of the control
process. These serve as the criteria against which the performance is evaluated by the
manager.

● Some commonly used standards are: quantity, quality, time and cost.

● A cushion effect must be provided in the control process by specifying on acceptable

level of degree of variations from the established standards.
13
 Control involves:

2. Measuring performance against the established standards.

● If performance standards are clearly established and made known to the performer of a
job, then measurement of performance becomes easy.

● The concept of measuring activities would result in what is being accomplished.

● In measuring an entity, there is always the question of what criteria to consider.

14
 Determine
Performance
Standards

Measurement of
Monitoring Stage Actual
Performance

Comparison of
Actual and
Reviewing Stage Planned
Performance

Take Corrective
Correcting Stage Action

Follow-Through
Follow-up Stage Action

15
Mr. Ronnie ALONE TE
NG
QUEZON CITY

16
 Control involves:

3. Comparison of Actual Performance

❖ This is the core of the control process. This phase of the control process involves
checking to determine whether the actual performance meets the predetermined or
planned performance. Managers must constantly seek to answer, "How well are we
doing?"

17
 Control involves:

4. Taking corrective action when and where deviations from the standards occur

❖ Minor corrections or fine tuning may be necessary to improve results or some major
efforts (temporary redesign, overtime, more staff or equipment) to meet a particular
emergency, rush order or project, and unexpected bottlenecks. When a significant
discrepancy occurs between the actual output or performance and the planned or
predetermined performance standards. Specific action must be taken to correct the
situation.

18
 Control involves:

5. Follow-through

❖ Often the control process is ineffective or fails because the corrective actions
recommended is not followed through. Specific procedures must be established and
the responsibility must be clearly assigned to carry out the corrective actions.

19
Characteristics of Control
The function of control is to keep work moving on schedule as planned towards the
established objectives and goals. To achieve this, control should meet certain
characteristics;

20
Certain Characteristics

● Attuned to the activity ● Control should be flexible

● Deviations must be ● Control should be
identified quickly economical
● Control must be
forward-looking ● Control should be easy to
understand
● Control must be
strategically oriented
● Control should indicate
corrective action 21
TYPES OF CONTROL

1. Controls used to standardize performance.

2. Controls used to safeguard company assets.

3. Controls used to standardize quality.

4. Controls designed to set limits within which delegated authority can be

exercised without further top management approval.

22
 TYPES OF CONTROL

5. Controls used to measure job performance.

6. Controls used for planning and programming operations.

7. Controls necessary to allow top management to keep the firm’s various

plans and programs in balance.

8. Controls designed to motivate individuals.

23
 CONTROL METHODS AND SYSTEMS

❏ There are two kinds of control methods: behavior control and output control.

★ Behavior (or personal) control - is based on direct, personal surveillance. The first-
line supervisor who maintains a close personal watch over subordinates is using
behavior control.
★ Output (or impersonal) control - is based on the measurement of outputs.

❏ Thomas Peters and Robert Waterman strongly emphasize the need for managers at all
levels to take a hands-on approach to managing. Thus, organizations need to use a mix of
output and behavior controls; each serves different organizational needs.
24
 CONTROL METHODS AND SYSTEMS

Flexible Budgets Zero-Base Budgeting

- In order to overcome many of - is one approach to budgeting
the shortcomings resulting from that has received attention over
inflexibility, flexible (variable) the last several years. It requires
budgets are designed to vary each manager to justify an
with the volume of sales or entire budget request in detail,
some other measure of output. from scratch.

25
CONTROL METHODS AND SYSTEMS

Direct Observation

- A store manager's daily tour of the facility; a company president's annual visit
to all branches; a methods study by a staff industrial engineer - all of these are
examples of control by direct observation. Although it is time-consuming,
personal observation is sometimes the only way to get an accurate picture of
what is really happening.

26
 CONTROL METHODS AND SYSTEMS

Written Reports

➢ Written reports can be prepared on a periodic or "as necessary" basis. There are two
basic types of written reports, analytical and informational.

➢ Preparing a report is a four- or five step process, depending on whether it is

informational or analytical:

1. Planning the attack on the problem;

2. Collecting the facts;
3. Organizing the facts;
4. Interpreting the facts (this step is omitted with informational reports)
5. Writing the report. 27
 AUDITS

● Audits can be conducted either by internal or external personnel. External audits are
normally done by outside accounts and are limited to financial matters. Most are to be
done to certify that the organization's accounting methods are fair, consistent, and
conform to existing practices.

● When an audit looks at areas other than finances and accounting,. it is known as
management audit. Management audits attempt to evaluate the overall management
practices and policies of the organization

28
 TIME RELATED CHARTS AND TECHNIQUES

● Gantt charts, the critical path method (CPM), and the program evaluation review
technique (PERT) are tools used to plan and schedule. These same tools can also be used
for controlling once the plans have been put into action. By tracking actual progress
compared to planned progress, activities that fall behind schedule can quickly be spotted.

29
Figure 7.3 Break-Even Chart
Total
Sales
40 Total
Cost

(in thousand P) Profit

30 Break- Even

20
Total
Fixed
Cost
10

1 2 3 4 5 6 7 8 9 10 11 12 13 14

VOLUME 30
4 PICS 1 WORD

31
Answer:

AUDIT
32
Management by objectives (MBO)
- is an effective means for setting objectives. It also can be used for control purposes. As with
many of the control techniques discussed in this chapter, the development of an MBO
system is part of the planning function. However, once MBO is implemented, it is used for
control purposes.

Management Information System (MIS)

- The Management Information System is a formal system for providing information to
managers. While not essential, most management information systems include the use of a
computer.

33
 Accounting Concepts and Techniques as Control Devices

Besides budgets, there are other accounting and financial concepts and techniques which are used as
control devices. These include responsibility accounting, cost accounting, standard cost approach, direct
costing, and ratio analysis. Under responsibility accounting, responsibilities for each manager are
identified and accounting records are designed to suit these responsibilities.

➔ Cost accounting - helps to provide information and control costs. Cost accounting uses standard
costs as a measure in its approach.

➔ Standard costs - are estimated for each product prior to production and after production they are
compared against actual costs.

➔ Direct costing takes only labor and material cost as variable costs. Analysis through the use of
ratios are also utilized by managers as control mechanism.

34
 1. Tests of Liquidity
- these measures are used to determine a firm's ability to meet short-term obligations, and to
remain solvent in the event of adversities.

. a. Current ratio = Current asset

Current liabilities

b. Quick or acid-test ratio = Current asset - inventories

Current liabilities

c. Liquidity of inventories = Cost of sales

Average Inventory

d. Defensive position = Cash + marketable securities + receivables

Projected operating expenditure/No. of days
35
2. Tests of Debt Service
- these tests are employed to present the project's ability to meet long-term obligations.

a. Debt-to-networth ratio = Total Liabilities

Total Equities

b. Total capitalization = Long-term liabilities

Long-term liabilities & equities

36
3. Tests of profitability
- these show the operational performance and efficiency of the project.

a. Net profit margin = Net income after tax

Sales

b. Operating profit margin = Profit before interest and taxes

Sales
c. Gross profit margin = Gross profit
Sales
d. Return on financier's investment = Net income + interest
Stock equity & long-term liability

37
 e. Return on owner's investment = Net Income
Stock Equity
f. Return on net operating profit = Profit before interest & taxes
Total tangible assets
g. Asset turnover = Sales
Total tangible assets
h. Return on assets, or earning power = Net Income
Total tangible assets

4. Test of total debt coverage = Profit before interest and taxes

(interest + principal payments) (1/1 - income tax
rate)
38
Funds-flow Analysis

Cash Flow Analysis: Cash Flow Analysis:

1. Source of Funds: 2. Uses of Funds:
a.) Net decrease in any asset other a) Net increase in any asset other
than cash than cash and fixed asset
b) Net increase in any liability b) Gross increase in fixed asset
c) Proceeds from the sales of c) Net decrease in any liability
stocks
d) A retirement of stock
d) Funds provided by operations
e) Cash dividends

39
Funds-flow Analysis

Working-Capital Flow Analysis: Working-Capital Flow Analysis:

1. Source of Funds: 2. Uses of Funds:
a.) Net decrease in any asset other a) Net increase in other assets
than current assets
b) Fixed increase on fixed assets
b) Net increase in long-term
c) Net decrease in long-term
liabilities
liabilities
c) Proceeds from the sale of stock
d) Retirement of stock
d) Funds provided by operations
e) Cash dividends

40
JUMBLED WORDS

41
Answer:

42
6. TESTS OF OPERATING LEVERAGE

- These functions indicate how the projects employ assets for which it pays a fixed cost. Before
these tests are, applied, a clarification should made on what “variable” and “fixed” costs are.

43
FIXED COSTS

- Are expenses which affect net income despite the fact that they incurred by the company
irrespective of the production volume.

VARIABLE COSTS

- It vary more or less directly with changes in production volume, such as direct materials, indirect
materials, direct labor, heat and power requirement of production machinery, maintenance of factory
machinery; supplies for manufacturing, engineering costs associated with unit output, etc.

-It should be noted that cost accounts are always predetermined “per se” as either “variable or fixed”,
since their classification depends on the company’s situations.

44
Thus, water supply is either a fixed or a variable cost depending upon whether it varies directly
with production volume or not. If water is a main component of a product to be manufactured
such as soft drink, it is a variable cost to the extent that is not incurred when no goods are
produced.

The same account, however, is a fixed cost if it is allocated to a manager’s office, since office
utilities generally do not affect the production rate.

45
A. BREAK-EVEN-VOLUME ANALYSIS

BEV = FIXED COSTS

SELLING PRICE – VARIABLE COST PER UNIT

B. BREAK-EVEN CASH ANALYSIS

BEC = CASH FIXED COSTS

SELLING PRICE – CASH VARIABLE COST PER UNIT

46
C. BREAK-EVEN-SELLING-PRICE ANALYSIS

BESP = VARIABLE COSTS + FIXED COSTS

UNIT VOLUME

= TOTAL COST X SELLING PRICE

SALES

D. BREAK-EVEN-SALES ANALYSIS

BES = BESP x UNIT VOLUME

= FIXED COSTS
47
1 – (VARIABLE COST / NET SALES
7. TEST OF FINANCIAL LEVERAGE
- These techniques represent how a project employs funds which pay a fixed return.

A. EARNINGS PER SHARE = NET INCOME

SHARES

B. DIVIDENDS PER SHARE = NET INCOME-PREF. STOCKS DIVIDED-RETAINED

EARNINGS

COMMON SHARE

48
8. TESTS OF CAPITAL INVESTMENT
- These financial tools evaluate the justification for investing in the project.
A. AVERAGE RATE OF RETURN = AVERAGE NET INCOME
AVERAGE NET INVESTMENT

B. PAYBACK PERIOD IN YEARS = INTIAL YEAR CASH OUTFLOW

SUCCEEDING ANNUAL NET CASH FLOW

C. CAPITAL RECOVERY OR CASH PAY OFF PERIOD IN YEARS

= STOCK
ANNUAL CASH DIVIDENDS 49
QUALITY CONTROL
- Quality control deals with setting up of quality standards in advance in such areas, as physical characteristics,
composition of the products, weight, size, color, strength and performance, and comparing these with actual
standards.

PRODUCTION CONTROL
➢ It is the backbone of any production system.
➢ It aims to produce the right product in the proper, quantity and quality, at the right time, and by the best and
least costly methods.
➢ Production control consists of planning the individual production orders, releasing them for production, and
following them through to completion, thereby assisting management control in their execution.

50
INVENTORY CONTROL
- is an essential sequence of a business operation. By maintaining an excess inventory, huge
sums of money are tied up, resulting in lost of interest or gain. By not maintaining adequate
inventory, delays are caused in the production process and as a result products do not reach the
market in time and sales are lost. In order to run an efficient and effective production system, a
balance must be maintained between these two conditions. Inventory control techniques help
to strike this balance.

Inventory turnover = Cost of goods sold

Cost of average inventory

51
ECONOMIC ORDER QUANTITY
- Economic order quantity (EOQ) is issued to determine the most economic level of inventory. At this
level, the purchase quantity minimizes total cost of purchase by balancing costs associated with small
orders.

EOQ = 2 Sc
Vi

where EOQ = Economic Order Quantity

S = Sales of the firm
c = Cost of placing an order
V = Value of each unit of inventory
i = Inventory cost
52
ECONOMIC ORDER QUANTITY
Example: If a firm's sales is 6000 units, "the cost of placing an order is P20; inventory cost 10 percent (usually carrying or inventory costs
are calculated as a percentage of the value of the inventory on hand); and the value of each unit is P15 then the Economic Order Quantity
is:
EOQ = 2 Sc
Vi
= 2 x 6000 x 20
15 x 0.10
= 240000
1.5
= 160000
= 400 units every time the order must be placed for 400 units to arrive at
an economic level.

53
 MAINTENANCE OF INVENTORY

- When the inventory is received, people in the receiving department check the number and quality of the
inventory and compare it with orders. When inventories are large, proper identification such as the
following are used:

● Alphabetical - Based on same predetermined scheme, a letter or group of letters are used.

● Mnemonic - The use of letters in some combination such that they suggest the classification name of
the particular item.

● Numerical - The use of numbers to identify the item.

● Sign - The use of symbols or signs to identify the items.

● Combination - The use of any two of the above methods. 54

 CONTROL BY REPORTS

• Reports constitute the backbone of control. Failure to handle the reports would affect their
decision making ability because feedback of information provided through the reports
serves as input for many supervisory and managerial decisions.

• These are various types of reports in an organization: Profit and loss-statements, balance
sheets, budgets, performance appraisal, annual reports, project reports, sales reports are
some of them.

55
JUMBLED WORDS

56
Answer:

57
THANK
THANK YOU!
YOU!
58