B3: Operations Management: Cost Accounting and Performance Management Flashcards
What are the most frequent objectives to cost accounting systems ?
- Product costing (inventory and cost of goods manufactured and sold)
- Income determination (profitability)
- Efficiency measurements (comparisons to standards)
What is prime cost and conversion costs?
- Prime cost = direct labor + direct material
- The prime components of manufacturing, labor and materials
- Conversion cost = direct labor + manufacturing overhead
- What it takes to convert direct materials in to finished goods
What is process costing ?
Averages costs and applies them to a large number of homogeneous items. Costs are accumulated by department, not job.
- Summarize the flow of physical units (production report)
- Calculate “equivalent unit” output
- accumulate tota costs to be accounted for
- Calculate average unit costs
- Apply the average costs to units completed and units in WIP inventory
How do you calculate process costs using FIFO?
Calculate Equivalent Units :
- Beginning WIP X % to be completed
- Units Completed - Beginning WIP
- Ending WIP X % Completed
Calculate Cost per Equivalent Unit:
- Current costs / Equivalent unit
How do you calculate process costs using Weighted Average?
Calculate Equivalent Units :
- Units Completed
- Ending WIP X % Completed
- (Note: No beginning WIP for EU)
Calculate Cost per Equivalent Unit:
- (Beginning Costs +Current costs) / Equivalent units
- (Note: Capture beginning costs in costs, not units)
What is Total Factor Productivity Ratios? (TFP)
Quantity of output produced relative to costs of all inputs used. Higher is better.
Output /
Total Costs
What is Partial Productivity Ratios? (PRR)
Quantity of output produced relative to quantity of individual inputs used. Productivity measure.
Output /
Specific qty of material or labor
What are the different types of Responsibility Segments ? CRPI
- Cost - Control the costs (Lowest level of responsibility)
- Revenue - generate revenue
- Profit - accountability for costs and revenue. Generally responsible for managing profit in relation to controllable costs.
- Investment - Board level decisions - (Highest level of responsibility)
*
What is on a balanced scorecard?
- Financial - Profit and Growth
- Internal business process - Efficient production, defects reduced
- Customer Satisfaction = customer surveys
- Advancement of innovation and human resources development - employee retention
looks at multiple dimensions of a organizations performance defined by critical sucess factors necessary to accomplish the firm’s strategy
What are the different costs of Quality?
- Conformance costs:
- Prevention costs - proactive costs to prevent quality issues
- Appraisal costs - identify problems before it gets to next department
- statistical quality control, inspection, testing
- Nonconformance costs:
- Internal costs - cure a defect before sent to customer
- Scrap, rework, tooling changes
- External costs - defect discovered after sent to customer
- Warranty, returns, liability claims, lost customers
What are the different quality control tools used to evaluate error rates and process improvements?
- Pareto - Historgram and line chart. Cumulative errors by type.
- Control chart - degree of compliance with goalpost quality standards Acceptable upper and lower level of deviation.
- Fishbone diagram - analyse cause and effect of errors to be able to take corrective action. Manpower, machinery, and methods.
What is return on assets ?
A profitability measure that can be used to evaluate the efficiency of asset usage and movement, and the effectiveness of business strategies to create profits.
ALSO: Profit margin x asset turnover
(Net income / Sales) x (sales/assets)
What is return on investment?
income divided by investment capital. Ideal performance measure for SBUs. The higher the better.
What is residual income?
Measures value added for stockholders in dollars.
Residual income = Net Income - (NBV Equity x Hurdle Rate)
Hurdle rate can be WACC, cost of equity, or target rate set by management.
What is Dupont ROE?
Return on Equity, but breaks ROE into 3 components: net profit margin, asset turnover, and financial leverage. Provides management clear picture of efficiencies and leverage.
Net Profit Margin - operating efficiency
Asset turnover - efficiency using assets
Financial leverage - extent which company uses debt
