Exam 3

Question 1

Major Limitations of ST financial performance Indicators

Answer 1

• employees and decision makers may take actions to improve ST financial performance at the expense of LT performance
• focusing on individual variances may result in optimizing local, but not global performance (buying material at lower cost than standard may result in lower qulaity -> unfavorable flexible-budget variance)
• operating personnel may not be able to interpret/ act upon financial performance indicators
• only tell about past operating performance
• construction, application, and use of a standard cost system may entail significant costs

Question 2

Benefits of Implementing JIT

Answer 2

reduction of out-of-pocket inventory carrying costs.

• reduction in inventory-related opportunity (holding) costs , all assets that are held require that capital be tied up
• possibly increase sales, market share, and profitability (bc of increases in quality and reductions in cycle/processing time)
• decrease production costs

Question 3

processing cycle efficiency

Answer 3

measure of operating process efficiency based on the relationship between actual processing time and total production time.

= processing time/ total manufacturing time

= processing time / (processing time + moving time + storage time + inspection time)

Question 4

advantages of nonfinancial measures of Business Process Performance

Answer 4

• easy to understand and quantify
• direct attention to basic business processes (precise problem that needs attention)
• useful indicators of future financial performance

Question 5

Processing Time Efficiency (PCE)

Answer 5

=processing time/ total manufacturing time

= processing time/ (processing + moving + storage +inspection time)

ratio of value-added time to value-added time plus non value-added time. (optimum situation, PCE =)

Question 6

Qualitative factors in Relevant Cost Analysis

Answer 6

• differences in quality
• functionality
• timeliness of delivery
• reliability in shipping
• after-sale service level

Question 7

shadow price

Answer 7

maximum amount the organization would pay per unit of the scarce resource

Question 8

joint production process

Answer 8

multiple outputs arise from a common resource input.

Question 9

joint production costs

Answer 9

costs incurred prior to the split-off point.

• common (indirect) costs
• NOT traceable to individual products

Question 10

split-off point

Answer 10

point in production process where products with individual entities emerge

Question 11

separable costs

Answer 11

costs incurred after the split-off point.

ARE traceable to individual products

Question 12

A useful guide to solving profitability analysis problems with multiple products and multiple resource constraints is:

Answer 12

Corner point Analysis

Question 13

3 step process of performing individual budgets

Answer 13

1. Define the bottom line
2. Determine what this information is a function of (e.g budgeted unit price, budgeted selling price)
3. put info together in a user-friendly way

Question 14

Sales Budget

Answer 14

Cornerstone of master budget

2 components: forecasted sales volume, budgeted selling prices

Question 15

Budgeted Production (equals)

Answer 15

Budgeted Sales + Desired Ending inventory - Beginning inventory