Final Flashcards
EOQ
Square Root: (2 * Annual Demand * Order Cost per) / Holding cost per
TRC
(Purchase cost * (annual demand/order Quantity)) + (Carrying cost * Order Quantity/2)
Total Costs
(interest rate * annual demand) + TRC
Average Wait Time
activity time * utilization factor * (variability factor/2)
What costs should be considered when conducting a Cost-Benefit Analysis for quality improvements?
Considerdirectcosts(e.g.,labor,equipment,materialcosts),indirectcosts(e.g.,customerdissatisfaction,lostsales),andpotentiallong-termbenefits(e.g.,increasedcustomerloyalty,lowerdefectrates).
What is the Balanced Scorecard?
A strategic planning and management system that uses key performance indicators across four perspectives:
Financial
Customer
Internal Business Processes
Learning and Growth
What is the difference between Normal and Abnormal Spoilage?
Normal Spoilage: Expected losses during production; costs are allocated to all units produced.
Abnormal Spoilage: Unforeseen losses beyond what is expected; costs are separately identified and not allocated to other units.
Reorder Point
Average Demand per Period × Lead Time
SafetyStock=
Z-score for desired service level *demand * Standard deviation of demand during lead time
What is the purpose of Safety Stock?
To protect against stockouts due to variability in demand and lead time.
ROI
(Operating income / investment) * 100
Operating Income
Investment * Required ROI
revenue - operating expenses
Revenue
Operating Income + Fixed Costs + Variable Costs
Minimum Selling Price
Revenue / Units Sold
Residual Income
Operating income - (RRR * Investment)
Contribution Margin
Revenue - Variable Costs
How does the Direct Method of cost allocation work?
- Allocate each support department’s costs directly to operating departments based on the chosen allocation base
- The allocation percentages reflect the proportion of support services used by the operating departments.
- The cost allocation does not involve any interaction between support departments.
How does the Step-Down Method of cost allocation work?
The Step-Down Method allocates support-department costs sequentially. One support department’s costs are allocated first, then the second support department’s costs are allocated to both operating and the first support department.
It partially recognizes the services provided to other support departments.
The order in which support departments are allocated matters.
How does the Reciprocal Method of cost allocation work?
- Set up linear equations to represent the cost allocation for each support department.
- Solve these equations to find the total costs for each department.
- Allocate the costs to operating departments based on the proportions of support services used by each.
AllocatedCosttoOperatingDepartment
(Allocation Base for Operating Department / Total Allocation Base) * Total Support Department Costs
AdjustedSupportDepartmentCost
OriginalSupportDepartmentCost+(PercentageofCostAllocatedtoSupportDepartment×Costof first support department)
AS
ASCost+(PercentageofISServicestoAS×ISCost)
IS
ISCost+(PercentageofISServicestoIS×ASCost)
Allocated Cost
(Total Support Department Costs / Total Cost Driver) * Cost driver for department
Overhead Rate per Labor-Hour
Total Allocated Support Costs / Total Direct Manufacturing Labor-Hours
IncrementalCosts=
CostswithDecision−CostswithoutDecision
Incremental Revenue
RevenuewithDecision − Revenue without Decision
Net Benefit =
Incremental Revenue - Incremental Costs
If Net Benefit >Additional cost of new component
Change
Break-Even Units
Incremental Cost / Contribution Margin
Variability factor
Coefficient of Variation of arrival times (square rooted) + Coefficient of Variation of production times (Square rooted) / 2
average cycle time
AverageWaitingTime+ActivityTime
Revenuefromadditionalrolls=
(Salesprice×(1−Scraprate))×Additionalrolls
If Net Benefit > 0
Buy from outside supplier
