Operations Management

Question 1

Time Series Analysis

Answer 1

1. Trend
2. Seasonal Variation
3. Cyclical Variation
4. Irregular

Question 2

Selling Price Variance

Answer 2

Selling Price Variance =
Quantity sold x (Selling Price - Estimated Price)

Question 3

Cost Center

Answer 3

Cost Center
- unit/department responsible for the incurrence
and proper utilization (control) of costs.

Investment Center
- adds revenues and investments to subdivision reports

Revenue
- not reported for cost center performance reports since
they are not controllable by the center manager
- is reported for investment centers since the manger
controls costs, revenues and investments

Question 4

Break even Analysis

Answer 4

• Unit revenues are linear (prices do not change)
• Unit variable costs are unchanged (linear)
• total costs increase as the number of units increase
• fixed costs are constant (straight line)

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Question 5

Static Budget

Answer 5

Static Budget
- budget is set for one anticipated volume, it is not adjusted for the actual output attained.
- represents budgeted costs for the budgeted output

Flexible Budget
- adjusted to the actual output

Question 6

Variable Costing / Direct Costing

Answer 6

Variable Costing / Direct Costing
- included only variable manufacturing costs in inventory
- it excludes fixed manufacturing overhead
- results in lower inventory than alternative methods

Absorbtion costing
- includes both fixed and variable manufacturing costs in
inventory

A hybrid system
- includes elements of both job order and process costing,
which normall include both fixed and variable costs in
inventory

Process costing system
- includes both fixed and variable costs in inventory

Question 7

Prime Costs / Conversion Costs

Answer 7

Prime costs =
Direct labor + Direct materials

Conversion costs =
Direct labor + factory overhead

Question 8

Flexible Budget

Answer 8

Flexible budget
-adjusts based based on changes in activity or output levels

Static business environment:
-offers stability
-predictability
-fewer changes
-business relies on established practices

Dynamic bus. environment
- continuous change
- uncertainty
- need for constant adaptation and adaptation
- be responsive to changes to stay competitive

Question 9

Special order decisions

Answer 9

• manufacture and sell below sales price
• assumed special order will not encroach existing sales
• if the assumption is valid, the special order can increase
  profit if price per unit exceeds variable costs
• made clear to customers that it is a one time order

Question 10

Just-in-time (JIT)

Answer 10

Just-in-time (JIT)
- raw materials purchases just as they are needed, reducing
inventory costs to zero
- philosophy promotes the simplest, least costly means of
production
- JIT shifts production from a push approach to a pull approach
driven by customer demand
- Faster response to changes in customer demand

Question 11

Direct labor Variances

Answer 11

Direct labor variance = standard rate per hour x (Standard hours - Actual hours)