Final Test Flashcards
Return on Investment
Net Operating Income/ Average Operating Assets
Net Operating Income
Income before interest and taxes, EBIT, income from operating activities
Operating Assets
Cash, Accounts Receivable, Inventory, Plant and Equipment used for operations purposes
Margin
Net Operating Income/Sales
Turnover
Sales/Avg Operating Assets
Residual Income
Net Operating Income-(Average Operating Assets*Min Rate of Return)
Delivery Cycle Time
Wait Time + Throughput Time
Throughout Time
Time required to turn raw materials into a completed product: Process Time + Inspection Time + Move Time + Queue Time
Manufacturing Cycle Efficency
Process Time(value added time)/ Throughout Time
Avoidable Cost, Opportunity Cost
Relevant Cost, costs that can be avoided or should be taken into account when choosing one alternative over another
Sunk Cost, Allocations
Irrelevant costs, should be ignored because they are already incurred and unavoidable
Add/Drop a Product Line
Compare the lost contribution margin to the avoidable fixed costs: Advertising, Salaries, Insurance
Make or Buy
Look at relevant and irrelevant costs. Make it if the relevant costs are less than buying the product. If deciding to buy, take into account opportunity cost.
Special Orders
Look at incremental costs and incremental revenues. Incremental costs are special modifications and new equipment needed.
Utilization of Constrained Rescources
Look at contribution margin per unit of constrained resource.
Process Further
Look at incremental revenue from processing it further and compare it to the incremental cost of processing it further.
Payback Method
Investment Required/ Annual Net Cash Inflow
Net Present Value
PV Cash Inflows-PV Cash Outflows
Internal Rate of Return
Investment Required/ Annual Net Cash Inflow give you the annuity factor that you find in your table. Use that to find the rate of return.
Simple Rate of Return
Annual Incremental Net Operating Income/ Initial Investment
Project Profitability Index
Net Present Value of Project/ Investment Required
