Study guide for CH 6 and 7

Question 1

In the short term, capacity is fixed and non controllable or based on expected future demand?

Answer 1

fixed and non controllable

In the long term, Capacity is based on expected future demand

Question 2

What variable do we focus in the short term

Answer 2

excess demand

Question 3

What are the changes or gaps between supply and demand?

Answer 3

it means demand changes frequently from demand excess and excess supply

Question 4

What should we do if we have excess supply?

Answer 4

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

Question 5

What should we do if we have excess demand?

Answer 5

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)

Question 6

What is criteria for accepting special orders?

Answer 6

Use excess capacity
if it is, compare unit price to UVC
if not, compare deny CM to accept CM ( the highest value)

Question 7

How is scarce capacity profitable?

Answer 7

1) To maximize profit when capacity is in short supply

2) Maximize CM per unit capacity
Rank products’ CM

Question 8

How do you decide to make or buy?

Answer 8

compare your uvc between making( insource) and buying ( outsource)

Question 9

what is a budget?

Answer 9

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

Question 10

What are two most important reasons to budget

Answer 10

1_ production lead times

2 material ordering lead times

3 treasury process

Question 11

What are roles of budgets

Answer 11

1) planning ( best course of action)
2) coordination ( of communicate among different departments )
3) control( performance evaluation and feedback )

Question 12

budget helps managers to think ahead and…

Answer 12

to use available resources

Question 13

How does budgets provide coordination?

Answer 13

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

Question 14

What are budgets control for?

Answer 14

benchmark for evaluating actual performance

compare actual vs budgeted performance

bridge planning and control decisions

Question 15

A revenue budget requires

Answer 15

the price of change

expected future sales

Question 16

A production budget requires

Answer 16

expected sales ( need rev budget)

firms inventory policy for FG

Question 17

What question help to prepare production budget?

Answer 17

1) capacity constraints

2) optimal inventory level
opportunity costs-trade off of costs

Question 18

What involves variable COGM budget?

Answer 18

1) total direct materials
2) total direct labor
3) total variable manufacturing overhead

Question 19

Iterative nature of budgeting?

Answer 19

companies rework their budgets more than once because budget makes better decisions with resources

Question 20

What are three components of cash budgets?

Answer 20

1) inflows of operations
2) outflows of operations
3) special items

Question 21

a cash budget can be managed ?

Answer 21

accelerating revs, deferring payments, or borrowing

Question 22

accrual accounting record revenue?

Answer 22

yes, product and service has been recorded.