BEC 1 Performance measurement Flashcards Preview

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Flashcards in BEC 1 Performance measurement Deck (32):
1

Financial measures of performance

1. Profit
2. Return on investment
3. Variance analysis
4. Balanced scorecard

2

Nonfinancial measures

1. External benchmarking - Productivity measures
a. Total productivity ratios = all output / all input
b. Partial productivity ratios = all outputs / major categories of inputs
2. Internal benchmarking - techniques to find and analyze the problem
a. Control charts - acceptable range
b. Pareto diagrams - most frequent issues
c. Cause and effect (Fishbone) diagram

3

Effective performance measures

- relate to goals of the organization
- balance long and short term issues
- reflect management of key activities
- under control of employees
- understood by employees
- used to reward the employee
- objective and easily measured
- used consistently

4

Marketing methods

1. Transaction marketing
2. Interaction based relationship marketing
3. Database relationship
4. E- marketing
5. Network marketing

5

Performance

1. Marketing methods are aligned with products
2. Performance incentives

6

Incentive compensation

1. Fixed salary
2. Bonuses
3. Other perks

7

Choices for management compensation

1. Time horizon
2. Fixed vs variable bonuses
3. Stock vs accounting based performance evaluation
4. Local vs company-wide performance
5. Cooperative vs competitive incentive plans

8

Components of product cost

Direct materials DM
Direct labor DL
Manufacturing overhead MO

9

Prime costs

Direct materials
Direct labor

10

Conversion costs

Direct labor
Manufacturing overhead

11

Product costs

inventoriable
become cost of goods sold when sold

12

Period costs

expensed in the period incurred

13

Traditional overhead rate

Budgeted manufacturing overhead costs / Estimated cost driver

14

Relevant range

The relevant range is the range of volume for which the assumptions of the cost driver are valid and in which the actual value of the cost driver exists

15

Treatment of costs incurred before the split off point for joint products

Costs incurred before the split off point are sunk costs, not relevant to further processing decisions

Joint costs are allocated using one of the following methods

Use % of product to total based on a ratio of:
- relative sales value
- net realizable value
- physical units

16

Cost of goods manufactured

Work in progress beginning
Add: Direct materials
Direct labor
Manufacturing overhead
Less: Work in progress ending

17

Cost of goods sold

Finished goods beginning
Add cost of goods manufactured or Purchased
Less finished goods ending

18

Job costing

Each unit/batch is unique and easily identifiable costs are determined by each job

Example: We print your resume in our print shop

19

Process costing

Continuous mass produced identical units are manufactured, and costs are determined by activity/process/department

Example: We process crude oil into gasoline

20

Equivalent unit

- used in process costing, equivalent units are fully completed and partially completed units during the period
- in applying costs, determine the units, then costs, then apply the cost flow assumption for cost per unit and allocation of cost

21

FIFO method - equivalent units

Equivalent units = (Beginning WIP x % to be completed) + Units started and completed + (Ending WIP x % completed)

22

FIFO method - total cost calculation

Total cost = Cost incurred during the current period

23

Weighted average method - equivalent units

Equivalent units = Units completed + (Ending WIP x % completed)

24

Weighted average method = total cost calculation

Total cost = Costs in beginning WIP + Costs incurred during the current period

25

Types of spoilage

1. Abnormal - charge to income of the current period
2. Normal - increase the cost of the product produced (inventory)

26

Activity based costing

ABC is a costing theory that assumes that resource consuming activities cause costs and that costs should be assigned to benefiting products based on the activities performed and the resources consumed.

ABC divide costs into multiple activity into multiple activity centers and identify the activities that drive the costs in each cost center. Costs are then assigned based on the volume of cost drivers at the determined rate per cost driver.

27

Characteristics of effective performance measures

Effective performance measures:
1. Relate to the goals of the organization
2. Balance long and short term issues
3. Reflect management of key activities sometimes referred to as critical success factors in the balanced scorecard.
4. Are under the control or influence of the employee
5. Are understood by the employee
6. Are used to both evaluate and reward the employee or otherwise constructively influence behavior.
7. Are objective and are easily measured.
8. Are used consistently

28

Transaction marketing

Customers are attracted for the sake of a single sale

29

Interaction-based relationship marketing

When customers are attached for the purpose of a sale that serves as the basis for an ongoing relationship

30

Database marketing

Information is gathered on customers and the information from that database is used to segment customers into target markets for a more effective selling effort.

31

Types of compensation

1. Fixed salary
2. Bonuses
3. Perks

32

Incentive compensation

1. Time horizon
2. Fixed vs variable bonuses
3. Stock vs accounting based performance evaluation
4. Local vs company wide performance
5. Cooperative vs competitive plans