The finance manager of a company calculates the gross profit ratio and the net profit ratio of the company at the end of every quarter. Which step of the controlling process is being performed?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Measurement of actual performance
Option (1) Setting performance standards — Incorrect. This step fixes the targets, such as the profit to be earned. The ratios here show what was actually earned.
Option (2) Measurement of actual performance — Correct. A company’s performance may be measured by calculating ratios like gross profit ratio and net profit ratio at periodic intervals. The finance manager is finding the actual results every quarter.
Option (3) Comparison of actual performance with standards — Incorrect. Comparison would set these ratios against the target ratios to find the deviation. Only the calculation is done here.
Option (4) Taking corrective action — Incorrect. Corrective action is the last step, taken after deviations are found and analysed. Nothing is being corrected here.
Measuring finds the actual figure. Comparing sets it against the standard to find the gap.
NCERT (2026-27 Edition): “Step 2: Measurement of Actual Performance: … It is generally believed that measurement should be done after the task is completed. However, wherever possible, measurement of work should be done during the performance. For instance, in case of assembling task, each part produced should be checked before assembling. Similarly, in a manufacturing plant, levels of gas particles in the air could be continuously monitored for safety. Measurement of performance of an employee may require preparation of performance report by his superior. Measurement of a company’s performance may involve calculation of certain ratios like gross profit ratio, net profit ratio, return on investment, etc., at periodic intervals. Progress of work in certain operating areas like marketing may be measured by considering the number of units sold, increase in market share, etc., whereas, efficiency of production may be measured by counting the number of pieces produced and number of defective pieces in a batch. …” |