Operations Management: Planning Techniques

Question 1

Projections

Answer 1

Multiple, hypothetical scenarios
Precursor to forecasts
Prepared for internal use

Question 2

What is a sensitivity analysis?

Answer 2

Process of experimenting with different parameters & assumptions, risk management tool, determine which variables are most sensitive to change

Question 3

What is scenario analysis?

Answer 3

Multiple different scenarios which represent alternative possible outcomes

Question 4

Forecasting Techniques

Answer 4

Driven by historical data & actual expectations
Internal & external audiences
Qualitative & quantitative methods

Question 5

What is the high-low method?

Answer 5

Estimates fixed & variable portions of costs

Question 6

What is a flexible budget?

Answer 6

Series of budgets prepared for range of activity levels

Question 7

What is a learning curve?

Answer 7

Workers become more familiar with a specific task, per-unit hours decline

Question 8

Breakeven point in units

Answer 8

Total fixed costs / contribution margin per unit

Question 9

Breakeven point in dollars

Answer 9

Unit price x breakeven point in units
OR
Total fixed costs / contribution margin ratio

Question 10

Sales unit to obtain desired profit

Answer 10

(Fixed cost + pretax profit) / contribution margin per unit

Question 11

Sales dollars to obtain desired profit

Answer 11

Variable costs + fixed costs + pretax profit
OR
(Fixed cost + pretax profit) / contribution margin ratio

Question 12

Margin of safety in sales dollars

Answer 12

Total sales - breakeven sales

Question 13

Margin of safety as percentage

Answer 13

Margin of safety in dollars / total sales

Question 14

Target cost

Answer 14

Market price - required profit

Question 15

What does marginal analysis focus on?

Answer 15

Relevant revenues & costs associated with a decision

Question 16

What are relevant costs?

Answer 16

If they change as a result of selecting different alternatives, fixed or variable

Question 17

What are direct costs?

Answer 17

Identified to a cost object, usually relevant

Question 18

What are prime costs?

Answer 18

Direct material & direct labor costs, generally relevant

Question 19

What are discretionary costs?

Answer 19

Arise from periodic budgeting decisions by management to spend in areas not related to manufacturing, usually relevant

Question 20

What are incremental costs?

Answer 20

Additional costs incurred to produce additional amount of unit over present output, relevant & include variable costs & any avoidable fixed costs

Question 21

What are opportunity costs?

Answer 21

Foregoing next best alternative, relevant costs

Question 22

What are irrelevant costs?

Answer 22

Do not differ among alternatives, irrelevant, ignored in marginal cost analysis

Question 23

What are sunk costs?

Answer 23

Unavoidable because incurred in past & cannot be recovered, not relevant

Question 24

What are controllable costs?

Answer 24

Costs authorized by business unit manager/decision maker, relevant if they change as result of selecting different alternatives

Question 25

What are uncontrollable costs?

Answer 25

Costs authorized at a different level in the organization, not relevant

Question 26

What are avoidable costs & revenues?

Answer 26

Result from choosing one course of action instead of another, relevant

Question 27

What are unavoidable costs?

Answer 27

The same regardless of chosen course of action, not relevant, have no effect on decision

Question 28

What are special order decisions?

Answer 28

Opportunities that require a firm to decide whether a specially priced order should be accepted or rejected

Question 29

What are joint costs?

Answer 29

Costs of a single process that yields multiple products, sunk costs not relevant

Question 30

What are separable costs?

Answer 30

Costs incurred after split-off point, relevant

Question 31

What is operational & tactical planning?

Answer 31

Process of determining the specific objectives & means by which strategic plans will be achieved

Question 32

What are single-use plans?

Answer 32

Apply to specific circumstances during a specific time frame

Question 33

What is an annual budget?

Answer 33

Translate the strategic plan & implementation into a period-specific operational guide

Question 34

What are ideal standards?

Answer 34

Costs that result from perfect efficiency & effectiveness

Question 35

What are currently attainable standards?

Answer 35

Costs that result from work performed by employees with appropriate training & experience

Question 36

What are authoritative standards?

Answer 36

Set by management

Question 37

What are participative standards?

Answer 37

Set by both managers & individuals held accountable to those standards

Question 38

What is a master budget?

Answer 38

Operating budget & financial budget outlining sources of funds & detailed plans for expenditures, normally one year or less

Question 39

What are operating budgets?

Answer 39

Describe resources needed & manner in which those resources will be acquired

Question 40

What are financial budgets?

Answer 40

Detailed sources & uses of funds in operations

Question 41

What is a direct materials purchases budget?

Answer 41

Represents dollar amount of purchases of direct materials required to sustain production requirements

Question 42

What is a direct materials usage budget?

Answer 42

Represents number of units of direct materials required for production along with related costs of direct materials

Question 43

What is a direct labor budget?

Answer 43

Anticipates hours & rates associated with workers involved in meeting production requirements

Question 44

What is a factory overhead budget?

Answer 44

Includes fixed & variable production costs, applied to inventory based on a representative statistic

Question 45

What is a cost of goods manufactured & sold budget?

Answer 45

Accumulates information from direct labor, direct material, & factory overhead budgets

Question 46

What is a selling & administrative expense budget?

Answer 46

Represents fixed & variable nonmanufacturing expenses anticipated

Question 47

What is a cash budget?

Answer 47

Represents detailed projections of cash receipts & disbursements

Question 48

What are the three cash budget sections?

Answer 48

Cash available Cash disbursements Financing

Question 49

What are capital budgets?

Answer 49

Evaluate capital additions over multiyear period, dependent on availability of cash/credit

Question 50

What is flexible budgeting?

Answer 50

Allows for adjustments for changes in production or sales & accurately reflects costs for adjusted output

Question 51

What is variance analysis?

Answer 51

Tool for comparing measure of performance to a plan, budget, or standard

Question 52

What are standard costing systems?

Answer 52

Measure costs the firm expects it should incur during production

Question 53

Variable overhead rate variance

Answer 53

Actual hours x (actual rate - standard rate)

Question 54

Variable overheard efficiency variance

Answer 54

Standard rate x (actual hours - standard hours allowed for actual production volume)

Question 55

Fixed overheard budget variance

Answer 55

Actual fixed overhead - budgeted fixed overhead

Question 56

Fixed overhead volume variance

Answer 56

Budgeted fixed overhead - standard fixed overhead cost allocated to production

Question 57

What are sales & contribution margin variances?

Answer 57

Can be used to evaluate effectiveness of identification of target markets & strategies to capture those markets

Question 58

Sales price variance

Answer 58

(Actual SP /unit - budgeted SP/unit) x actual sold units

Question 59

Sales volume variance

Answer 59

(Actual sold units - budgeted sales unit) x standard contribution margin per unit