Study guide for CH 6 and 7 Flashcards
In the short term, capacity is fixed and non controllable or based on expected future demand?
fixed and non controllable
In the long term, Capacity is based on expected future demand
What variable do we focus in the short term
excess demand
What are the changes or gaps between supply and demand?
it means demand changes frequently from demand excess and excess supply
What should we do if we have excess supply?
1) try to put unused capacity to productive use
a) permanently reduce price or run special promotion
b) fulfill special orders
c) Make components in house
What should we do if we have excess demand?
1) try use available capacity in the most profitable way
a) increase price
b) change product mix into profitable products
c) Outsource part of production to outside suppliers ( make vs buy decisions)
What is criteria for accepting special orders?
Use excess capacity
if it is, compare unit price to UVC
if not, compare deny CM to accept CM ( the highest value)
How is scarce capacity profitable?
1) To maximize profit when capacity is in short supply
2) Maximize CM per unit capacity
Rank products’ CM
How do you decide to make or buy?
compare your uvc between making( insource) and buying ( outsource)
what is a budget?
takes a set assumptions
formulates targets
developed for specific future period
defines the goals we’re trying to achieve in a specific period
shows use how we plan to achieve these goals
What are two most important reasons to budget
1_ production lead times
2 material ordering lead times
3 treasury process
What are roles of budgets
1) planning ( best course of action)
2) coordination ( of communicate among different departments )
3) control( performance evaluation and feedback )
budget helps managers to think ahead and…
to use available resources
How does budgets provide coordination?
marketing department to discuss logistics and treasury
Production department must coordinate with ordering/supplies and everyone
Ordering must coordinate with treasury logistics
treasury must coordinate with everyone
What are budgets control for?
benchmark for evaluating actual performance
compare actual vs budgeted performance
bridge planning and control decisions
A revenue budget requires
the price of change
expected future sales
A production budget requires
expected sales ( need rev budget)
firms inventory policy for FG
What question help to prepare production budget?
1) capacity constraints
2) optimal inventory level
opportunity costs-trade off of costs
What involves variable COGM budget?
1) total direct materials
2) total direct labor
3) total variable manufacturing overhead
Iterative nature of budgeting?
companies rework their budgets more than once because budget makes better decisions with resources
What are three components of cash budgets?
1) inflows of operations
2) outflows of operations
3) special items
a cash budget can be managed ?
accelerating revs, deferring payments, or borrowing
accrual accounting record revenue?
yes, product and service has been recorded.
