B4 (1/2 BV) Flashcards
Business Process management seeks
incremental change by tweaking existing process and design
Switching from traditional inventory to Just in Time
decrease cost per purchase order and increase carrying cost (carrying cost only decrease with fewer items in inventory for a shorter period of time)
Benefits of just in time system
for raw material include limitation of non value adding operations
Total Quality Management (TQM) Characteristics
customer focus, continuous improvement, quality circles
Benefits of Just in Time System
management strategy is cost reduction, work in process reduction, quality improvement
Companies that adopt just in time purchasing
often experience reduction in suppliers
Lean Management Philosophy main objective is
waste reduction
Kaizen use analysis of production processes to ensure
that resources used stay within costs
theory of constraints says organizations with
must work past it
Theory of constraints is concerned with
maximizing throughput by identifying and solving constraints
High Low Cost: Variable Cost
High Low Cost:
Change in total cost
—————————— = Variable Cost
Change in Volume cost
Probability Risk analysis is an extension of
sensitivity analysis (used to examine the possible outcomes given different alternatives)
Sensitivity analysis uses a
trial and error method in which the sensitivity of the solution to changes in variables calculated
The regression analysis model is the best classifier of
cost as either fixed or variable and estimates the dependent and cost variable.
When a value is an “intercept” means its touch the line.
Values are “Y” and production in units “X”
1) R-Squared
2) P-Value
3) Standard Error
4) T-Statistic hypothesis
1) R-Squared the coefficient of determination and is the proportion of the total variation in a dependent variable (y) explained by independent variable (x)
2) P-Value measure of the likelihood that tested data could have occurred by chance or current event
3) Standard Error is a measure of average variability of a sampling
4) T-Statistic hypothesis testing and computation of confidence levels
y=a+bx
1) a= ______________
2) bx= _____________
3) y= _______________
y=a+bx
1) a= fixed cost
2) bx= variable cost (x independent variable)
3) y= total cost
In the regression analysis the coefficient of determination measures
goodness of fit / how well a statistical model predicts an outcome
1) Learning curve analysis
2) Expected Value
3) Continuous Probability
1) Learning curve analysis: is used to determine increases in efficiency or production as experience is gained
2) Expected Value analysis: represents the long term average of repeated trials and is found by multiplying the probability of each outcome by its payoff
3) Continuous Probability simulation: is a procedure that studies a problem by creating a model of the process then through trial and error attempt to improve problem solutions
If stock L is perfectly negatively correlated with M that presents a portfolio with the
the least amount of risk, it’s a better option than stock J and K having no correlation
Costs that are relevant when deciding the point at which a product should be sold in order to maximize profit is
separable costs after split off point
1) Just in time system maintains:
2) Inventory turnover:
1) Just in time system maintains a much smaller level of inventory.
2) Inventory turnover (COGS divided by average inventory) increases with a switch and inventory as percentage of total assets decreases
Selling obsolete inventory at a loss would increase the…
the quick ratio. The reduction of inventory values and recording loss would have no impact on quick assets.
Cash advance is made to a divisional office does not change the….
current assets or current ratio because the reduction of cash is offset by increase in accounts receivable
Cash Conversion Cycle Formula
Cash Conversion Cycle = Days in Inventory + Days Sales in Accounts Receivable - Days of Payables Outstanding
A positive measure would reflect the strong direct relationship means the
coefficient is 1
Cost Based Pricing is associated with
Price Stability, Price Justification, Fixed Cost Recovery
Absorption costing absorbs
fixed overhead costs into the unites produced. The units placed in inventory can absorb some of the managers cost and raise profits.
Breakeven analysis assumes that over the relevant range unit variable costs are unchanged. Fixed costs are always constant
relevant range unit variable costs are unchanged. Fixed costs are always constant
Cost Volume profit analysis are
all costs can be divided into fixed and variable elements, total costs are directly proportional to volume over the relevant range, volume only relevant factor affecting cost
An increase in production levels within a relevant range most likely result from
increasing the total cost
Absorption costing will produce a greater
net income than variable costing bc absorption is treatment of fixed costs as unexpired inventory and recognized as COGS when relieved (thereby having a higher inventory causing Net income to go up). Under variable costing all fixed costs are treated as periodic expenses
To maximize profit at full capacity
contribution margin per hour should be maximized
Issuing capital stock for cash results in an increase in both
equity(aka working capital) (from the stock issuance) and current assets (from the cash collected). Total debt total assets debt is unchanged but assets increase from cash therefore ratio will decrease
Increase in sales collection would decrease the
cash conversion cycle because cash conversion cycle is calculating how long it takes to receive the cash
Relevant costs are incremental costs which represent the change with
different alternatives, Differential costs represents cost associated with two separate courses of action, avoidable costs which is adverted by selecting different course of action, opportunity cost, direct costs and variable costs (sometimes relevant but not always)
Opportunity cost of making a component part in a factory with no excess capacity is
net benefit given up from the best alternative use of the capacity
Opportunity cost is
the contribution to income that is foregone by not using a limited resource for its best alternative use
Opportunity cost is the
potential benefit lost by selecting a particular course of action. If idle space has no alternative use, there is no benefit foregone; opportunity cost is zero
Sunk costs are costs incurred in the
in the past that will not change as a result of any decision made in the future. These costs are considered irrelevant in decision making
Research and development costs are
sunk costs because they are costs in the past
Sales volume variance arises solely because
the quantity actually sold differs from the quantity budgeted to be sold
A revenue variance (aka sales price variance) is due to a
change in unit selling prices
Purchasing Manager would be responsible for
a price variance
Purchasing Manager is directly involved in negotiation of
materials prices and would have the greatest influence over the direct materials price variance. The direct materials price variance could be used to monitor purchasing manager performance
When actual sales are less than budget, budget do not
change at all
A flexible budget is appropriate for any activity that has a
variable cost (ex: marketing budget and direct material usage budget)
Within a relevant range
total fixed costs remain constant. Fixed costs per unit therefore decreases as production levels (number of units) increase. On other hand variable costs per unit remain constant, so total variable costs increase as production levels increase.
Flexible budget adjusts the
budget amounts for differently levels of activity. The flexible budget identifies volume components of variances from planned activity.
A master budget is an
overall budget consisting of many smaller budgets, that is based on one specific level of production. A flexible budget is a series of budgets based on different activity levels within relevant range
When management is developing the capital budget they use a
profit center equipment requests because department requests, appropriately justified, would provide key insight into capital requirements of business
Flexible budget uses
budgeted revenue and costs per unit, but is adjusted based on actual units of output
Operating/ financial budget
(operating budget describes plan for revenue and expenses) examples are cash budget, sales budget, production budget
Flexible budget the budgeted amounts
are adjusted for the actual levels of activity/ actual results/ levels of production
Flexible budget provides
cost allowances for different levels of activity whereas a static budget provides costs for one level of activity
The cash budget must be prepared before
you can complete forecasted balance sheet
The budgeted income statement produces
produces anticipated accrual basis net income or loss and is added to beginning owners equity to generate the owners equity section of the budgeted balance sheet
The statement of cash flows is usually the last
pro forma statement prepared. This is because everything affects cash. Only when everything else has been estimated can cash flow projected
The cash receipts budget includes
loan proceeds
Selling and Administrative budgets need to be
detailed in order that the key assumptions can be better understood
Cost of goods manufactured budget would most directly relate to
would most directly relate to materials used, direct labor, overhead applied, and work in process inventories budgets
Production budget is calculated from
from the desired ending inventory and the sales forecast
Participative budgeting is more time consuming because
more time consuming because it requires input from multiple stakeholders
Relevant costs is best for evaluating
discontinued items because it considers alternatives
Standards imposed by management without employee input are referred to as
authoritative standards
Benchmarking
the current performance of operations to current performance measures
Manufacturing industries such as
industries such as mass production are typical areas where standard cost systems are used. However, service industries may also use a standard cost system
Opportunity cost is the cost of the next best thing so if it cost $5 each for 5,000 units or 10,000 to rent extra space. The $________ is the opportunity cost.
The $10,000 is the opportunity cost.
1) When establishing a budget the first thing you do is __________
2) The cash budget is usually broken down into _________________
3) The cash budget alerts management to __________________
4) The cash budget shows _________________________
1) When establishing a budget the first thing you do is forecast sales volume
2) The cash budget is usually broken down into monthly periods
3) The cash budget alerts management to periods when there will be excess cash available for investment
4) The cash budget shows itemized cash receipts and disbursements during the period, including financing activities and the beginning and ending cash balances
Cost Objectives
1) Valuation of unexpired costs
2) Efficiency measurement
3) Determination of Net Income
A firm earning a profit can increase its return on investment by
increasing sales revenue and operating expenses by the same percentage
In using a process cost system, a production report is usually generated that fully accounts for all units and costs. The physical flow of units is fully accounted for by
Determining that the units in process at the beginning of the period plus the units transferred in are equal to the units transferred out plus ending inventory.
Contribution Approach
Revenue
- Variable Costs
________________
Contribution Margin
- Fixed Costs
______________________
Net Income
Contribution Margin Ratio
Contribution Margin / Revenue
Absorption Formula
Revenue
- Cost of Goods Sold
___________________________
Gross Margin
- Operating Expenses
___________________________
Net Income
Breakeven Point in Units
Total Fixed Costs
______________________________
Contribution Margin Per Unit
Breakeven points in dollars
Total Fixed Costs
_____________________________
Contribution Margin Ratio
Sales Volume for Target Profit
(Fixed Cost + Pretax Profit)
______________________________
Contribution Margin per Unit
Selling Prices based on Assumed Volume
(Fixed Costs + Variable Costs + Pretax Profit)
______________________________
Number of Units Sold
Margin Safety Formula
Total Sales - Breakeven Sales
Quick Ratio
Cash & Equivalents + Securities + Receivables
______________________________
Current Liabilities
Operating Cash Flow Ratio
Cash Flow from Operations
______________________________
Ending Current Liabilities
Working Capital Turnover
Sales
__________________________
Average Working Capital
Days in Inventory
Ending Inventory
_________________________
Cost of Goods Sold / 365
Days in Accounts Receivable
Ending Accounts Receivable
______________________________
Sales / 365
Days in Payable Outstanding
Ending Accounts Payable
__________________________
Costs of goods sold/ 365
Operating Cycle
Days in Inventory + Days sales in accounts receivable
Debt to Equity
Total Liabilities
_________________
Total Equity
Total Debt Ratio
Total Liabilities
_________________
Total assets
Gross Margin
Sales - Cost of Goods Sold
___________________________
Sales
Operating Margin
Operating Income
____________________
Sales
Profit Margin
Net Income
______________
Sales
Return on Equity (ROE)
Net Income
_____________________
Average total equity
Return on Assets (ROA)
Net Income
______________________
Average Total Assets
Flexible Budget
(Variable Cost per Unit x Activity Level ) + Fixed Costs
Direct Materials Purchases Budget
Direct Materials Usage Budget
Beginning Inventory at Cost
+ Purchase at Cost
- Ending Inventory at cost
______________________________
= Direct Materials Usage
Direct Labor Budget
Budgeted Production
x Hours required to produce each unit
______________________________
= Total number of hours needed
x Hourly Wage Rate
______________________________
= Total Wages
Manufacturing Overhead Variances
Volume Variance
1) Budgeted Fixed Overhead - Applied Fixed Overhead
2) (Actual Production in Units - Budgeted Production in Units) x Per Unit Standard Fixed Overhead Rate
Sales Volume Variance
[Actual Sold Units - Budgeted Sales Units] x Standard Contribution Margin per Unit
Sales Price Variance
NRV Formula
Expected Selling Price - Total Production & Selling Cost
