“In a manufacturing organisation, an increase of 5 per cent in the labour cost may be more troublesome than a 15 per cent increase in postal charges”. The associated concept is:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Critical Point Control
Option (1) Critical Point Control — Correct. Checking every single activity is neither easy nor economical. So control should focus on the key result areas, the points that are critical to the success of the organisation. In a factory, labour is a large part of total cost. A small rise in labour cost therefore hurts far more than a big rise in postal charges, and labour cost is a critical point to watch closely.
Option (2) Result Areas — Incorrect. Key result areas are the areas from which the critical points are chosen. ‘Result Areas’ on its own is not the name of the control technique.
Option (3) Management by Exception — Incorrect. This principle says that only significant deviations, the ones beyond the permitted limit, should be reported to management. It is about the size of a deviation, not about which activity matters more.
Option (4) Management Audit — Incorrect. A management audit is a review of how well the management itself is working. It does not decide which costs deserve closer control.
NCERT (2026-27 Edition): “Critical Point Control: It is neither economical nor easy to keep a check on each and every activity in an organisation. Control should, therefore, focus on key result areas (KRAs) which are critical to the success of an organisation. These KRAs are set as the critical points. If anything goes wrong at the critical points, the entire organisation suffers. For instance, in a manufacturing organisation, an increase of 5 per cent in the labour cost may be more troublesome than a 15 per cent increase in postal charges.” |