Operations Management Flashcards
Nonfinancial Measures
Nonfinancial measures are attention getters without the use of dollar figures. Nonfinancial measures include number of days missed due to work place accidents. Another example of nonfinancial performance measures would be the measure of defective goods manufactured and also the number of days missed due to workplace accident.
Total productivity ratios are non-financial measures. Total productivity ratios compares the value of all input. Partial productivity ratios are also nonfinancial measures. Partial productivity ratios compare the value of all output to the value of just some inputs – for example, the value of all output to the value of direct materials input. Productivity ratios measure outputs achieved in relation to the inputs of production.
Fishbone Diagram
Fishbone Diagrams are considered internal benchmarks. Fishbone diagrams describe the process, the contribution to the process, and potential problems that could occur at each phase of the process. Fishbone diagrams identify a quality-control problem and check the defect back to the source.
Pareto Diagram
Pareto Diagram is considered in internal benchmark. The Pareto diagram is used to determine quality control problems occur most frequently so they can receive the more urgent attention and be corrected first. Then the next most frequent problem and correct. 80/20 20 % cause 80 % of the problems
Transaction Marketing
A transaction marketing practice emphasizes a single sale with no further transactions with the customer required. The retailer following such practices believes that customers are attracted to low prices and will likely return based on price only.
Interaction-based Relationship
Interaction-based Relationship marketing says that sales further relationships, thereby driving more sales. Within transaction-based marketing, the sale is just the start of the relationship with the potential of continued revenue through service and parts.
Activity-based Costing
By using more than one cost driver, activity based costing provides management with a more thorough understanding of product costs and product profitability. In addition, activity based costing leads to a more competitive position by evaluating cost drivers. In activity based costing, cost-reduction is accomplished by identifying and eliminating non-value adding activities. Reducing and eliminating non-value adding activities will lower overall cost.activity-based costing uses cause and effect relationships to capitalize cost to inventory. This is not acceptable for external reporting and useful to management for internal reporting.
Variable Costing
Using variable costing, only variable costs are included in inventory. Consequently, the difference in net income using variable costing versus absorption costing is the amount of fixed manufacturing costs (accounting for in inventory using absorption costing) multiplied by the change in inventory. An increase in inventory indicates that a portion of the fixed costs associated with the inventory using absorption costing is expensed using variable cost. Absorption costing therefore produces greater income than variable costing as inventory levels increase.
Direct (sometimes called variable) Costing
Direct (sometimes called variable) Costing can be used for internal purposes only; GAAP prefers absorption costing. Direct costing is not used for the benefit of external users. Variable costs exclude fixed from product (inventoried) costs and deadline produce an income statement based on contribution margin, highly useful to internal managers and computing breakeven points and analyzing performance but not useful for external reporting. using variable costing, all fixed factory okay it is treated as a period cost and is experienced in the. Incurred. The cost of inventory includes only viable cost. Using variable costing the cost of goods sold include only variable costs. Also, viable selling, general, and administrative expenses are part of total variable costs.
Margin of Safety
Margin of Safety is the difference between current sales and breakeven in sales. Breakeven sales is calculated by dividing fixed costs by the contribution margin ratio:
Breakeven in sales = Fixed costs/ contribution margin ratio
Fixed costs/contribution margin ratio = breakeven in sales
Margin of safety = current sales - breakeven in sales
Special Orders
When considering a special court, manufacturers except for special order if the sales price were in excess of the relevant costs.
Relevant Costs
Relevant costs differ depending upon whether the manufacturer is already at full capacity. If already at full capacity, the relevant costs include not just all variable costs that opportunity cost as well. If there is excess capacity in the factory, the costs include only variable costs. Costs are relevant costs if the change to decision to produce an additional amount of the unit over the present output.
Make or Buy Decisions
When deciding between make or buy, fixed costs should be ignored unless those fixed costs be avoided by purchasing the product instead of making the product.
Operational Decision Methods (Marginal Analysis)
Operational decision methods are referred to as marginal analysis, is used when analyzing business decisions such as the introduction of a new product. Operational decision analysis is also used when analyzing business decisions such as acceptance or rejection of special orders, making verses buying a product or service, and adding or dropping a segment. Marginal analysis is also used in deciding whether to change out output levels of existing products.
Joint Costs
Joint costs are sunk costs, costs that are incurred already, and are not relevant to the sale or process further decision. Joint costs occur when two (or more) main products start from the same process and then eventually become different identifiable products. All the costs up to the point that the products become identifiable are known as joint costs. The point where the two distinct products can be identified is known as the split off point.
Incremental Costs
Incremental costs are relevant costs. Incremental costs are relevant because they include costs that vary with the decision to produce an additional amount of the unit over the present output. Prime costs (direct materials and direct labor) are incremental costs and would be relevant because they have parity with the decision to produce an additional amount of the unit over the present output.
The Correlation Coefficient
The Correlation Coefficient measures the strength of a relationship between the dependent variable and the independent variable. The correlation coefficient is always a number between– 1 and +1. If the relationship is strong, it will have a coefficient near +1 or– 1, depending on the slope of the relationship.
Linear Regression
Linear Regression analysis is a statistical method that fits 89 to the data I at least squares method. It is the most accurate way to classify costs of an object as either fixed or variable.
Control Chart
Control chart is a measure of nonfinancial performance that is considered in internal benchmark. A control chart shows the performance of a particular manufacturing process in relation to acceptable upper and lower limits of error, or deviation. Control charts show if there is a trend of improved quality performance or if there is a trend of more error.
Total Product Cost
Total Product Costs are the sum of direct materials, direct labor, and factory overhead applied.
Example to Calculate Cost of Goods Manufactured from Total Manufacturing Costs is as follows
Total manufacturing costs 10
Beginning work in process +1
Ending work in process -5
Cost of goods manufactured 6
Factory Overhead control
The cost of in direct materials used increases the factory overhead control account and decreases materials controls.called actual overhead costs are debited to the overhead control T account.
Weighted-Average Method
The first step under the weighted average method is to determine the units completed during this period. Then calculate the percentage completed using the ending inventory units. Adding those two numbers together equals equivalent units. The second step is to determine cost per (equivalent) unit. To calculate equivalent cost per unit using weighted average, use both current costs and beginning inventory costs in the numerator and divide by the number of equivalent units.
Methods used for equivalent units of Inventory
Regardless of the method used, the formula for cost per equivalent unit is total costs divided by number of equipment units. Using FIFO, the number of equivalent units (denominator) includes beginning inventory units. Using weighted average, the starting point for the calculation of the number of equipment units (denominator) is the number of units completed and transferred out during this period. Using weighted average, the beginning inventory units are not considered in the calculation of equipment units.
Activity Based Costing
By using more than one cost driver, activity based costing provides management with a more thorough understanding of product costs and product profitability. In addition, activity based costing leads to a more competitive position by evaluating cost drivers. In activity based costing, cost-reduction is accomplished by identifying and eliminating non-value adding activities. Reducing and eliminating non-value adding activities will lower overall costs.
