Operation Management

Question 1

what is the Coefficient of determination?

Coefficient of determination (R2)= 1- SSregression/ SS total
. SSregression – The sum of squares due to regression (explained sum of squares).
.SStotal – The total sum of squares

Answer 1

coefficient of determination (R² or r-squared) is a statistical measure in a regression model that determines the proportion of variance in the dependent variable that can be explained by the independent variable. In other words, the coefficient of determination tells one how well the data fits the model (the goodness of fit). The values range from-1 (no explanation) to 1 (all explained).

Question 2

how to calculate the material price variance?

Answer 2

Material price variance = Quantity purchased × (Standard price − Actual price).

Question 3

how to calculate material usage variance?

Answer 3

Material usage variance = Standard price × (Standard quantity − Actual quantity)eeee2

Question 4

How to calculate the expected value?

Answer 4

To calculate the expected value, one must multiply predicted sales activity by the sales growth rate. Then, multiply this value by the probability under each interest rate scenario. As a final step, subtotal these amounts under each predicted scenario and add them to the value of overall sales.

Question 5

The variable overhead efficiency variance

Answer 5

= The budgeted overhead costs at the actual volume - the budgeted costs at the earned volume

Question 6

unfavorable variable overhead efficiency

Answer 6

if actual labor hours are more than the budgeted or standard amount, the variance is unfavorable.

Question 7

what is the single-rate method of allocating service department costs?

Answer 7

The single-rate method allocates service department costs to producing departments and develops a combined (variable and fixed) overhead application rate.

Question 8

Break-even sales per unit

Answer 8

Total fixed costs / Contribution Margin per unit

Revenue - VC-FC= 0 at Break even point

Question 9

Contribution Margin per unit

Answer 9

Selling Price per unit - All Variable Costs per unit( Direct Material, Direct Labor, Variable Factory overhead, Variable Selling).

Question 10

Calculate Profit before tax

Answer 10

Profit/(1-tax rate)

Question 11

Margin of Safety

Answer 11

How far sales have to drop before the company incurs a loss.

= Actual or Budgeted sales - Break-even sales

Question 12

Contribution Margin ratio

Answer 12

Contribution Margin per unit/ sales price

Question 13

In CVP( Cost Volum Profit) Analysis, does Variable cost behave?

Answer 13

Total cost per unit changes as the production increases or decreases.
Unit Variable cost is unchanged.

Question 14

Differential Cost Analysis

Answer 14

the study of relevant costs that are associated with a decision among different courses of action.

Question 15

Break-Even Revenue (BE$)

Answer 15

BE x SP or FC / CM%

Question 16

Quantity of Units to Be Sold to Earn Target Operating Income (OI)

Answer 16

(FC + Target OI) / CM per unit

Question 17

Revenue Needed to Earn Target OI

Answer 17

(FC + Target OI) / CM%

Question 18

Target (before-tax) OI

Answer 18

Target (after-tax) Net Income / 1 - Tax Rate

Question 19

The labor efficiency (usage) variance

Answer 19

= the standard cost of actual hours - the standard cost of the budgeted labor hours.

Question 20

The material efficiency (usage) variance

Answer 20

= budgeted cost of actual materials used - the budgeted cost of standard materials that should have been used for the units produced

Question 21

Process-based management

Answer 21

Process-based management focuses on internal processes such as customer satisfaction, quality of product, and security as well as financial results (revenues, costs, profit, and budget). PBM works for any industry and is compatible with any business model.

Question 22

A just-in-time purchasing system

Answer 22

involves the receipt of goods (or raw materials) “just in time” for sale (or production). That is, sales “pull” goods through the production process: goods are purchased/produced to meet sales demand and are sold and delivered immediately. Thus, the company virtually eliminates holding inventory and thereby decreases carrying costs. There is no need to have either raw materials or finished goods “on-hand” because smaller quantities are received as needed, i.e., more frequently. As a result, the company must have a ready, reliable source of goods/materials that will deliver high quality (i.e., reducing the need for quality inspection upon receipt) in a timely fashion.This increased dependence on, and interaction with, vendors forces the company that adopts a just-in-time purchasing system to reduce the number of suppliers to those few who will guarantee the needed quality and timeliness of delivery.

Question 23

manufacturing cycle efficiency

Answer 23

Manufacturing or Process Time / Time from Start of Manufacturing to Delivery

Question 24

Relevant cost

Answer 24

costs that differ in total between alternatives.

fixed overhead cost is not a relevant cost.

Question 25

Opportunity cost

Answer 25

is the profit that is lost by pursuing an alternative choice.

Question 26

Avoidable cost

Answer 26

costs will not be used if the department or product is terminated. i.

Question 27

Sunk cost

Answer 27

past, or unavoidable cost.

Question 28

Residual income

Answer 28

Residual income is the amount of net income in excess of a minimum desired rate of return on invested capital.

Question 29

Economic value added (EVA)

Answer 29

measures surplus or excess value created by an enterprise’s investments. EVA is calculated as return on the capital minus cost of capital multiplied by invested capital. Shortcomings of EVA include the focus on past rather than future performance, and its complexity restricts its use to larger businesses.

Question 30

Economic value added (EVA) formula

Answer 30

EVA = (Return on capital – Cost of capital) X Capital investment in a project

Question 31

Turnover on Assets

Answer 31

Total sales / total average assets

Question 32

what is Residual income ?

Answer 32

Residual income is the net income above a minimum desired rate of return on invested capital.

Question 33

Residual Income formula

Answer 33

Residual income = Reported net income - (Desired rate of return × Invested capital)

Question 34

investment turnover ratio

Answer 34

net sales / the sum of shareholder equity and outstanding debt

Question 35

ROI

Answer 35

ROI = Net Income / Cost of Investment
ROI = Return on sales / capital turnover
capital turnover = sales / capital
return on sales = icome / sales

Question 36

Markup Percentage Formula

Answer 36

sales Price - unit cost / unit cost * 100

Question 37

ROI from operating income

Answer 37

operating Income / average invested capital

Question 38

ROA

Answer 38

= net income / assets
or
ROA = Profit margin ratio × Asset turnover ratio
becasue :
Profit margin = (Net income /net sales ) * 100
Asset turnover = sales / assets

Question 39

Direct Labor Efficiency Variance

Answer 39

(=SH − AH) × SR

Question 40

equivalent unit

Answer 40

Equivalent units for weighted-average method=
Units completed and transferred
+ Units in process at end of period (weighted as to % labor,
material, and overhead added to date)

Question 41

equivalent unit ( under FIFO)

Answer 41

Equivalent units for weighted-average method- Units in process at beginning of period