Chapter 04 Operations Management: Planning Techniques

Question 1

What is the best basis upon which cost standards should be set to measure controllable production inefficiencies?

Answer 1

The ideal standards represent cost that result efficiency and effectiveness in job performance. Not historical and forward looking.

Question 2

The difference between master budget and flexible budget

Answer 2

The master budget is based on one production level and flexible budget is designed to reflect any production level within range of production activities.

Question 3

Static budget

Answer 3

Based on budgeted cost and budget output

Question 4

Budget order -

Answer 4

Sales, Production, DM purchase, cash disbursement, income statement, balance sheet, cfs

IS must come before BS

Question 5

cash budget

Answer 5

the cash budget provides information concerning the need for external financing not internal financing.

Question 6

Flexible budget

Answer 6

uses budgeted revenue and cost per unit but is adjusted based on actual units of output. Flexible budget is prepared for any department with variable cost. Wont work for fixed cost only

Question 7

Relevant Cost

Answer 7

Direct cost,
Prime cost - DM & DL
Discretionary cost/Differential cost
Incremental cost
Opportunity cost
Avoidable cost

Question 8

Special Order - At capacity

Answer 8

Assuming available capacity, the minimum cost per unit of a special order is equal to
variable cost per unit. FIXED cost are irrelevant

Question 9

Special Order - No capacity

Answer 9

At CAPACITY, the minimum price for a special order is the sum of the
variable cost of current utilization
plus contribution margin of the next best.

Question 10

Make VS BUY

Answer 10

Select the lowest cost alternative.
Joint cost - cost of single process that yields multiple products. Joint costs are sunk costs that are not relevant to the decision of whether to sell or to process further.
Separable cost incurred after the split off point relevant decision.
Deciding factor
revenue Compare the incremental cost and the incremental

Question 11

Sell or process further

Answer 11

Joint cost are not relevant to decision of selling or process
Separable cost incurred after the split off point is relevant
Compare the incremental cost and incremental revenue after the split off point