Operation Management Flashcards
what is the Coefficient of determination?
Coefficient of determination (R2)= 1- SSregression/ SS total
. SSregression – The sum of squares due to regression (explained sum of squares).
.SStotal – The total sum of squares
coefficient of determination (R² or r-squared) is a statistical measure in a regression model that determines the proportion of variance in the dependent variable that can be explained by the independent variable. In other words, the coefficient of determination tells one how well the data fits the model (the goodness of fit). The values range from-1 (no explanation) to 1 (all explained).
how to calculate the material price variance?
Material price variance = Quantity purchased × (Standard price − Actual price).
how to calculate material usage variance?
Material usage variance = Standard price × (Standard quantity − Actual quantity)eeee2
How to calculate the expected value?
To calculate the expected value, one must multiply predicted sales activity by the sales growth rate. Then, multiply this value by the probability under each interest rate scenario. As a final step, subtotal these amounts under each predicted scenario and add them to the value of overall sales.
The variable overhead efficiency variance
= The budgeted overhead costs at the actual volume - the budgeted costs at the earned volume
unfavorable variable overhead efficiency
if actual labor hours are more than the budgeted or standard amount, the variance is unfavorable.
what is the single-rate method of allocating service department costs?
The single-rate method allocates service department costs to producing departments and develops a combined (variable and fixed) overhead application rate.
Break-even sales per unit
Total fixed costs / Contribution Margin per unit
Revenue - VC-FC= 0 at Break even point
Contribution Margin per unit
Selling Price per unit - All Variable Costs per unit( Direct Material, Direct Labor, Variable Factory overhead, Variable Selling).
Calculate Profit before tax
Profit/(1-tax rate)
Margin of Safety
How far sales have to drop before the company incurs a loss.
= Actual or Budgeted sales - Break-even sales
Contribution Margin ratio
Contribution Margin per unit/ sales price
In CVP( Cost Volum Profit) Analysis, does Variable cost behave?
Total cost per unit changes as the production increases or decreases.
Unit Variable cost is unchanged.
Differential Cost Analysis
the study of relevant costs that are associated with a decision among different courses of action.
Break-Even Revenue (BE$)
BE x SP or FC / CM%
Quantity of Units to Be Sold to Earn Target Operating Income (OI)
(FC + Target OI) / CM per unit
Revenue Needed to Earn Target OI
(FC + Target OI) / CM%
Target (before-tax) OI
Target (after-tax) Net Income / 1 - Tax Rate
The labor efficiency (usage) variance
= the standard cost of actual hours - the standard cost of the budgeted labor hours.
The material efficiency (usage) variance
= budgeted cost of actual materials used - the budgeted cost of standard materials that should have been used for the units produced
Process-based management
Process-based management focuses on internal processes such as customer satisfaction, quality of product, and security as well as financial results (revenues, costs, profit, and budget). PBM works for any industry and is compatible with any business model.
A just-in-time purchasing system
involves the receipt of goods (or raw materials) “just in time” for sale (or production). That is, sales “pull” goods through the production process: goods are purchased/produced to meet sales demand and are sold and delivered immediately. Thus, the company virtually eliminates holding inventory and thereby decreases carrying costs. There is no need to have either raw materials or finished goods “on-hand” because smaller quantities are received as needed, i.e., more frequently. As a result, the company must have a ready, reliable source of goods/materials that will deliver high quality (i.e., reducing the need for quality inspection upon receipt) in a timely fashion.This increased dependence on, and interaction with, vendors forces the company that adopts a just-in-time purchasing system to reduce the number of suppliers to those few who will guarantee the needed quality and timeliness of delivery.
manufacturing cycle efficiency
Manufacturing or Process Time / Time from Start of Manufacturing to Delivery
Relevant cost
costs that differ in total between alternatives.
fixed overhead cost is not a relevant cost.
Opportunity cost
is the profit that is lost by pursuing an alternative choice.
Avoidable cost
costs will not be used if the department or product is terminated. i.
Sunk cost
past, or unavoidable cost.
Residual income
Residual income is the amount of net income in excess of a minimum desired rate of return on invested capital.
Economic value added (EVA)
measures surplus or excess value created by an enterprise’s investments. EVA is calculated as return on the capital minus cost of capital multiplied by invested capital. Shortcomings of EVA include the focus on past rather than future performance, and its complexity restricts its use to larger businesses.
Economic value added (EVA) formula
EVA = (Return on capital – Cost of capital) X Capital investment in a project
Turnover on Assets
Total sales / total average assets
what is Residual income ?
Residual income is the net income above a minimum desired rate of return on invested capital.
Residual Income formula
Residual income = Reported net income - (Desired rate of return × Invested capital)
investment turnover ratio
net sales / the sum of shareholder equity and outstanding debt
ROI
ROI = Net Income / Cost of Investment
ROI = Return on sales / capital turnover
capital turnover = sales / capital
return on sales = icome / sales
Markup Percentage Formula
sales Price - unit cost / unit cost * 100
ROI from operating income
operating Income / average invested capital
ROA
= net income / assets
or
ROA = Profit margin ratio × Asset turnover ratio
becasue :
Profit margin = (Net income /net sales ) * 100
Asset turnover = sales / assets
Direct Labor Efficiency Variance
(=SH − AH) × SR
equivalent unit
Equivalent units for weighted-average method=
Units completed and transferred
+ Units in process at end of period (weighted as to % labor,
material, and overhead added to date)
equivalent unit ( under FIFO)
Equivalent units for weighted-average method- Units in process at beginning of period
