Exam 3 Flashcards
planning coordinating and controlling activities related to the flow of inventory into through and out of an organization
inventory management
managing inventories to increase net income requires effectively managing costs that fall into these six catagories
Purchasing costs ordering costs carrying costs stock out costs quality costs shrinkage costs
the cost of goods acquired from suppliers including freight
purchasing costs
the cost of preparing and issuing purchase orders receiving and inspecting the items included in the orders and matching invoices received purchase orders and delivery records to make payments
ordering costs
the costs that arise while holding inventory of goods for sale this includes the opportunity cost of the investment tied up in inventory and costs associated with storage
carrying costs
the costs that result when a company runs out of a particular item for which there is customer demand and the company must act quickly to meet the demand or suffer the costs of not meeting it
stock out costs
the costs that result when features and characteristics of a product or service are not in conformance with customer specifications
quality costs
cost that result form theft embezzlement and clerical errors
shrinkage costs
is a decision model that calculates the optimal quantity of inventory to order under a given set of assumptions
economic order quantity
EOQ formula
square root of 2 times demand times ordering costs divided by the carrying costs
how are carrying costs calculated
annual return on investment plus the cost of insurance, materials handling, breakage shrinkage, per year
how do you calculate RTC (Relevant total costs)
((D/Q)xP)+((Q/2)xC) P= Ordering costs C=Carrying costs
the quantity level of inventory on hand that triggers a new purchase order
Reorder point
how is the reorder point calculated
number of units sold in a period of time x purchase order lead time
inventory held at all times regardless of the quantity of inventory ordered using EOQ
safety stock
purchasing is the purchase of material s or goods so they are delivered just as needed for production or sales
Just in time purchasing
a means of gathering and using information to aid and coordinate the planning and control decisions throughout an organizations and to guide the behavior of its managers and other employees
management control systems
include explicit rules procedures performance measures and inventive plans that guide the behavior of its managers and incentive plans that guide the behavior of its managers and other employees
formal system
include shared values loyalties and mutual commitments among members of the company corporate culture and unwritten norms about acceptable behavior
informal system
how should management control system systems be evaluated
they should be closely aligned with the company’s strategies and goals
they should also motivate managers and employees
exists when individuals and groups work toward achieving the organization’s goals managers working in their own best interest take long term actions that align with the overall goals of top management
Goal Congruence
is exertions toward reaching goals including both physical and mental actions
effort
means the minimum constraints and maximum freedom for managers at the lowest levels of an organization to make decisions
total decentralization
means maximum constraints and minimum freedom for managers at the lowest levels of an organization to make decisions
total centralization
name the benefits of decentralization
leads to gains from faster decision making
increases motivation of subunit managers
costs of decentralization
in congruent decision making or dysfunctional decision making
name the 4 types of responsibility centers
cost center
revenue center
profit center
investment center
the price one subunit charges for a product or service supplied to another subunit of the same organization
Transfer price
an organization’s ability to offer products or services perceived by its customers to be superior and unique relative to the products or services of its competitors
product differentiation
an organizations ability to achieve lower costs relative to competitors through productivity and efficiency improvements elimination of waste and tight cost control
cost leadership
translates an organizations mission and strategy into a set of performance measures that provides the framework for implementing its strategy uses non-financial and financial measures to do this
balanced scorecard
evaluates the profitability of the strategy, uses the most objective measures in the scorecard, and the other three perspectives eventually feed into this
financial perspective of balanced scorecard
identifies targeted customer and market segment examples include product complaints customer satisfaction and market share
customer perspective
focuses on internal operations that create value for customers that in turn further financial perspective by increasing shareholder value examples include delivery time quality and process
Internal Business Perspective
identifies the capabilities the organization must excel at to achieve superior internal processes that create value for customers and shareholders examples include employee satisfaction time for development and implementation employee skills and education
learning and growth perspective
what are the features of a balanced scorecard
- tells the story of the firms strategy articulating a sequence of cause and effect relationships and how strategy should be implemented
- communicates the strategy to all members and are understandable and measurable targets
- motivates managers that will eventually result in improvements in financial performance
- limit the number of measures to only the most critical ones
Balanced scorecard pitfalls
- seeking improvements across all of the measures at the same time
- managers using only objective measures and not any subjective measures
- managers look at both the costs and benefits of the balanced scorecard especially costs
- ignoring non financial measures
- managers using too many measures
measures the change in operating income attributable solely to the change in the quantity of output sold between the current and prior periods
growth component
measures the change in operating income attributable solely to changes in prices of inputs and outputs between the current and prior periods
price recovery component
measures the change in costs attributable to a change int eh quantity of inputs between the current and prior periods
productivity component
managers can reduce capacity-based fixed costs by measuring and managing unused capacity
management of capacity
is the amount of productive capacity available over and above the productive capacity employed to meet consumer demand in the current period
unused capacity
the total features and characteristics of a product or serviec made of preformed according to specifications to satisfy customers at the time of purchase and during use focuses on reducing cost and increasing customer satisfaction
quality
refers to how closely the characteristics of a product or service meet the needs ad wants of customers
design quality
refers to the performance of a product or service relateive to its design and product specifications
conformance quality
incurred to preclude the production of products that do not conform to specifications
prevention costs
incurred to sect which of the individual units of products do not conform to specifications
appraisal costs
incurred on defective products before they are shipped to customers
internal failure costs
incurred on defective products after they are shipped to customers
external failure costs
name the examples of prevention costs (6)
design engineering process engineering supplier evlauations preventive equipment maintenance quality training testing of new materials
name examples of appraisal costs (3)
inspection
online product manufacturing and process inspection
product testing
name examples of appraisal costs (5)
spoilage rework scrap machine repairs manufacturing/process engineering on internal failures
name examples of external failures ((4)
customer support
manufacturing/process engineering for external failures
warranty repair costs
liability claims
non financial measures of customer satisfaction include (6)
surveys on satisfaction market share number of defective units shipped to customers number of customer complaints product fail rates delivery delays/ on-time deliveries
three techniques for identifying and analyzing quality problems
control charts
Pareto diagrams
cause and effect diagrams
important things for the learning and growth perspective of quality
employee turnover ratio employee satisfaction employee training employee empowerment experience and qualifications of design engineers
how quickly firms respond to customers demand for their products and services and their reliability in meeting scheduled delivery dates
operational measures of time
how long it takes form the time a customer places an order for a product or service is delivered to the customer
customer response time
delivering a product or service by the time it was scheduled to be delivered
on-time performance
what is the formula for the average wait time
annual average number of orders for gears times the manufacturing time per order of gears squared all divided by 2 times the annual machine capacity - annual average number of orders times manufacturing time per rode of gears
any facto in which a change in the factor causes a change in the speed of an activity
time driver
what are the two time drivers
uncertainty about when customers will order products and services
bottlenecks due to limited capacity
describes methods to maximize operating income when faced with some bottleneck and some non bottleneck operations
theory of constriants
what is the throughput margin formula
revenues minus the direct material cost to the goods sold
when are throughput margins applicable
only when a bottle neck exists
when do you know a bottle neck exists
when capacity <= production
