BEC 4 - Operations Management Flashcards
What does R^2 represent?
The percentage of variation in the dependent variable explained by the variation in the IDEPENDENT variable
Learning Curve
A cumulative look at decrease in production time as workers learn how to complete a process.
Ex) Takes 50 hrs to complete 1 unit, 70% learning curve
2 units = 50 x .7 = 35 hours. 35 x 2 = 70 hours
4 units = 35 x .7 = 24.5 hours. 24.5 x 4 = 98 hours
8 units = 24.5 x .7 = 17.15 hours. 17.15 x 8 = 137.2 hours
High Low Method
Estimates fixed and variable costs.
1) VC per unit = Change in TC / Change in Volume
2) Solve for FC
Absorption approach
US GAAP
```
Revenue
COGS
=Gross Margin
(Operating expenses)
=NI
~~~
Contribution approach
Uses variable costing
```
Revenue
variable costs
=Contribution margin
(fixed costs)
=NI
~~~
Contribution margin ratio
Contribution margin / Revenue
Biggest difference between absorption and contribution approach?
The treatment of fixed factory overhead.
Absorption: COGS, product cost, inventoriable
*If production is greater than sales and inventory goes up, income is higher
Contribution: fixed cost, period cost, expensed as incurred
*If sales are greater than production and inventory goes down, income is higher
Breakeven point
*in units
Total FC / contribution margin per unit
*in dollars
Total FC / contribution margin ratio
Margin of safety
*in dollars
Total sales - Breakeven sales
*as a %
margin of safety (dollars) / Total sales
Target cost
Market price - required profit
Relevant cost/revenue
only relevant if it changes as a result of selecting different alternatives
DM price variance
Actual quantity PURCHASED x (Actual price - standard price)
DM quantity usage variance
Standard price x (actual quantity USED - standard quantity allowed)
DL rate variance
Actual hours worked x (Actual rate - standard rate)
DL efficiency variance
Standard rate x (Actual hours worked - standard hours allowed)
