Ops Mgmt A - Perf Mgmt and Impact

Question 1

Residual Income (RI) =

Answer 1

NI - (Min. Req Rate x Invested Capital)

Question 2

Return on Investment (ROI) =

Answer 2

NI / Invested Capital

Question 3

Profit Margin =

Answer 3

NI / Sales

Question 4

Capital Employed Turnover Rate =

Answer 4

Sales / Invested Capital

Question 5

ROI also =

Answer 5

Profit Margin x Capital Employed Turnover Rate

Question 6

A mgmt practice involving concentration on areas that deserve attention and placing less attention on areas operating as expected is

Answer 6

mgmt by exception

Question 7

Mgmt by objectives is

Answer 7

a mgmt practice that involves having a manager and subordinate jointly develop objectives and plans

Question 8

Responsibility Accounting is

Answer 8

a method whereby responsibility is identified and related to managers and then managerial performance is monitored and evaluated based on this

*think cost center, profit center, investment center

Question 9

Benchmarking is

Answer 9

identifying the best in class performance or other measure and then comparing the company’s performance to that standard

Question 10

Flexible (incremental) budget is

Answer 10

a less detailed budget prepared for several possible levels of production (prospective) or adjusted for the level of production actually achieved (retrospective)

Question 11

Static budget is

Answer 11

a very detailed budget prepared for a single target level of activity and it does not change

Question 12

Favorable variance is

Answer 12

when actual costs are less than the budget

Question 13

Profit Margin on Sales =

Answer 13

Income / Sales

Question 14

Asset Turnover =

Answer 14

Sales / Assets

Question 15

Return on Assets (ROA) =

Answer 15

Income / Assets

Question 16

ROA also =

Answer 16

Profit Margin on Sales x Asset Turnover

Question 17

Incentive compensation programs should be setup to

Answer 17

promote and maintain an inspired and productive work environment

Question 18

Controllable revenue would be included in a performance report for

Answer 18

a profit center

Question 19

Only controllable _______ appear in the cost center performance report

Answer 19

costs

Question 20

A profit center includes

Answer 20

both controllable revenues and controllable costs

Question 21

If you have multiple divisions of a company, you would ________ to find the Residual Income of the company as a whole

Answer 21

calculate the RI for each division and sum

Question 22

A performance measure that may lead a manager of an investment center to forgo investments that could benefit the company as a whole is

Answer 22

ROI

Question 23

Profitability Index (PI) =

Answer 23

PV of CF after initial investment / Initial Investment

Question 24

Economic Value Added (EVA) =

Answer 24

After-tax operating income - [WACC x (Total Assets - Current Liabilities)}

Question 25

In evaluating customer profitability, price discounts would fall into the category of customer

Answer 25

revenue level per unit

Question 26

Discounts are _________ not cost outlays

Answer 26

price adjustments

Question 27

An incentive compensation program will

Answer 27

lead employees toward the goals of the organization

Question 28

An unfavorable materials usage variance would be charged to

Answer 28

the manufacturing dept

Question 29

Unfavorable variance is

Answer 29

a disadvantageous result not in the best interest of the company

Question 30

DM usage variance =

Answer 30

Standard cost x (Std qty - Actual qty)

Question 31

RI is preferred over ROI because

Answer 31

RI concentrates on maximizing absolute dollars of income rather than a % return as with ROI

Question 32

When using ROI, RI, and EVA, the theoretically superior (not necessarily the one most widely used) investment base would be

Answer 32

replacement value

Question 33

Delivery cycle time is

Answer 33

the time from receipt of the order to order delivery

Question 34

Delivery cycle time =

Answer 34

Wait time + Inspection time + Process time + Move time

Question 35

The direct costs that should be traced to specific products include _____ and ______ but not _____

Answer 35

DM and DL; not FOH

Question 36

______ cannot be traced to specific jobs and should instead by allocated based on an allocation rate

Answer 36

FOH

Question 37

In the I/S preparation of an internal report using VC method, fixed selling and admin exp would

Answer 37

be used in the computation of operating income but not in the computation of the contribution margin

Question 38

Based on standard direct labor hours, a fixed OH volume variance measures

Answer 38

deviation from the normal, or denominator, level of direct labor hours

Question 39

Balanced Scorecard provides for the following 4 perspectives:

Answer 39

- financial performance - customer knowledge/satisfaction - internal business processes - learning and growth (innovation)

Question 40

A DL overtime premium should be charged to a specific job when the overtime is caused by the

Answer 40

customer's requirement for early completion of the job

Question 41

The primary disadvantage of using ROI rather than RI to evaluate the performance of investment center managers is

Answer 41

ROI may lead to rejecting projects that yield positive CF

Question 42

The profit center manager can control

Answer 42

the contribution margin

Question 43

Total Contribution Margin =

Answer 43

Total Sales - Total VC

Question 44

Contribution Margin Ratio =

Answer 44

(Unit Price - VC) / Unit Price

Question 45

ROI relies on financial measures that are capable of being independently verified while other forms of performance measures are subject to manipulation. Fact or Fiction?

Answer 45

Fiction *many financial measures are capable of being independently verieid

Question 46

To determine how much lower NI would be if Variable costing was used instead of full absorption costing, you would calculate =

Answer 46

Change in Inventory x Fixed Cost per unit

Question 47

Margin of Safety =

Answer 47

Actual Sales - Breakeven point sales

Question 48

Product Cott has sales of $200,000, a contribution margin of 20%, and a margin of safety of $80,000. What is Cott's fixed cost?

Answer 48

$24,000 *(200-80) * 20%

Question 49

Debt Ratio =

Answer 49

Total Debt / Total Assets

Question 50

ROE =

Answer 50

NI / Stockholder's Equity

Question 51

Debt Ratio + Equity Ratio =

Answer 51

1.0

Question 52

Assets =

Answer 52

Liabilities + Stockholder's Equity

Question 53

Nonfinancial measures include:

Answer 53

``` inventory turnover labor efficiency on-time deliveries schedule attainment units per hour throughput time measures of customer satisfaction measures of environmental compliance % of defective products ```

Question 54

In developing a predetermined FOH application rate for use in a process costing system, the numerator and denominator would be

Answer 54

estimated FOH / estimated machine hours

Question 55

A manufacturing company prepares I/S using both absorption and variable costing methods. At the end of a period, actual sales revenue, total gross profit, and total contribution margin were approx. equal to budgeted figures; whereas NI was substantially greater than the budgeted amount. There were no BI or EI. The most likely explanation for the NI increase is that, compared to budget

Answer 55

actual selling and administrative fixed expenses decreased

Question 56

Nonfinancial performance measures are important to engineering and operations managers in assessing the quality levels of the products. The indicators ______ and _____ can be used to measure product quality

Answer 56

Returna & allowances and the # & types of customer complaints

Question 57

If a company purchases a long term asset on the last day of the current year, the effect on ROI and RI is

Answer 57

a decrease in both

Question 58

A job order cost system uses a predetermined FOH rate based on expected volume and expected fixed cost. At the end of the year, underapplied OH might be explained by:

Answer 58

Actual volume, less than expected; Actual fixed costs, greater than expected

Question 59

Underapplied OH is

Answer 59

Actual OH cost > OH applied to WIP

Question 60

Under the balanced scorecard, employee satisfaction and retention are measures used under

Answer 60

Learning and growth

Question 61

Throughput time is

Answer 61

the time from start of manufacturing to delivery

Question 62

Throughput time =

Answer 62

Start time + Process time + Inspection time + Move time

Question 63

Manufacturing Cycle Efficiency (MCE) =

Answer 63

Process time / Throughput time

Question 64

Raw Materials Used =

Answer 64

BI Raw + Purch - EI Raw

Question 65

COGM =

Answer 65

BI WIP + RM Used + DL + OH Applied - EI WIP

Question 66

COGS =

Answer 66

BI FG + COGM - EI FG

Question 67

Gross Profit Margin =

Answer 67

Sales - COGS

Question 68

Imputed cost aka

Answer 68

Implied cost or opportunity cost

Question 69

Imputed cost is

Answer 69

the cost that is incurred by virtue of using an asset instead of investing it or undertaking an alternative course of action

Question 70

Of ROI and RI, imputed costs are used in

Answer 70

RI but not ROI

Question 71

Return on Sales (ROS) =

Answer 71

Income / Sales

Question 72

Capital Turnover (CT) =

Answer 72

Sales / Invested Capital

Question 73

ROI also =

Answer 73

ROS x CT

Question 74

Gross Margin % =

Answer 74

(Sales - COGS) / Sales

Question 75

A ratio that should be used to compare profitability of 2 electronic companies that differ in size is

Answer 75

ROA

Question 76

Return on Assets (ROA) =

Answer 76

NI / Avg Total Assets

Question 77

Profit Margin =

Answer 77

NI / Net Sales

Question 78

Asset Turnover =

Answer 78

Net Sales / Avg Total Assets

Question 79

ROA also =

Answer 79

Profit Margin x Asset Turnover

Question 80

WACC =

Answer 80

(Cost of Equity x % Equity) + (Cost of Debt x % Debt x (1-marginal tax rate)

Question 81

EVA is also =

Answer 81

NOPAT - (WACC x Capital Used)

Question 82

Under the balance scorecard, a company's success in a targeted market segment is covered by the

Answer 82

customer perspective

Question 83

If byproducts are recorded at Net Realizable Value (NRV),

Answer 83

then no profit is recognized when sold

Question 84

The most important resource to ensure that a cross-functional team is effective would be

Answer 84

strong top mgmt commitment to the process

Question 85

Performance measures should assess how well subunits and managers are meeting the

Answer 85

goals of the organization

Question 86

Material Purchase Price Variance (MPPV) =

Answer 86

Qty purchased x (Actual price - Standard price)

Question 87

An MPVV that is favorable means

Answer 87

that actual material price must have been less than the standard material price

Question 88

In general, the most appropriate basis on which to evaluate the performance of a division manager is the division's

Answer 88

net revenue less controllable division costs

Question 89

Incentive compensation should not be awarded for

Answer 89

clocking in at 8am

Question 90

Incentive compensation can be awarded for

Answer 90

- meeting a required deadline - finding a $1 million error - collection of old AR