Operations Management (15-25%) Flashcards

Question

What is regression analysis?

Answer 1

relationship between fixed, variable, and total costs as a regression equation = y = A + Bx ``` y = total cost (dependent variable) A = fixed costs (the y intercept) B = variable costs (the slope) x = # of units (independent variable) ``` correlation coefficient (R) measures strength of relationship between dependent and independent variable - ranges from -1 (negative correlation) to 1 (high correlation) - 0 would be no correlation y L\ = negative x y L / = positive x coefficient of determination (R2) is degree to which independent variable can predict dependent variable

Answer 2

- RELEVANT costs: costs that have different future costs and benefits - IRRELEVANT costs: future costs which do not changed based on different alternatives - AVOIDABLE costs: costs that can be avoided by choosing one alternative over another - SUNK costs: costs in past and irrelevant for decision making going forward - joint costs another type, not relevant in a 'sell or process' further decision - OPPORTUNITY costs: cost of choosing one opportunity over the other, very relevant in making financial decisions - INCREMENTAL/DIFFERENTIAL costs: total difference between two alternatives

Answer 3

AVOIDABLE COSTS (direct materials, direct labor, variable costs) - fixed costs are same no matter what - calculation will see if would make or lose money on special order

Answer 4

one department in manufacturing company sells materials to another department - price changed is the transfer price minimum transfer price (floor) - equal to avoidable outlay costs (cost incurred in order to execute a strategy or acquire an asset) maximum transfer price (ceiling) - equal to market price *fairest transfer price will usually be standard variable cost + lost contribution margin

Answer 5

involves developing standards for production, such as materials, labor and overhead, then COMPARING ACTUAL results TO BUDGETED results, CREATES VARIANCES between standards costs and actual costs - material variances allocated to WIP, finished goods, and/or COGS - labor/overhead variances (nonmaterial variances) written off to COGS

Answer 6

PURE 1 - PRICE variance (how much materials cost) 2 - USAGE variance (how much materials used) 3 - RATE variance (how much was paid for labor) 4 - EFFICIENCY variance (how many hours of labor went into each unit)

Answer 7

standard amount - actual amount = difference/variance - negative # - indicates unfavorable variance - positive # - indicates favorable variance difference/variance then taken and: 1 - if is a price/rate variance - multiply by actual quantity (finding difference in prices/rates and multiplying by actual quantity) - (Price Variance = (AP-SP)AQ)) PR-AQ 2 - if is usage/efficiency variance - multiply difference by standard rate (finding difference in labor hours/quantities used and multiplying by standard rates) - (Quantity Variance = (AQ-SQ)SP)) EU-SP

Answer 8

having processes in place to continuously improve existing processes in order to deliver more value both inside organization and outside to customers ``` lifecycle: (DMEMO) 1 - design 2 - model 3 - execute 4 - monitor 5 - optimize ```

Answer 9

- OUTSOURCING: contracting business process to external service provider - SHARED SERVICES: one department provides a service previously performed in multiple departments - creating efficiencies by consolidating activity into one department - OFFSHORE OPERATIONS: business process moved to another country with aim of reducing costs two of the biggest risk with moving operations offshore - cultural and language issues

Answer 10

quality improvement approach that focuses on reducing defects and reducing costs closely related to total quality management (TQM) - uses similar tools - control charts, run charts, pareto histograms, fish bone diagrams main theme is 6 standard deviations - which covers 99.99% of products, hence the name - idea is goal to have greater than 99% of products meet quality guidelines and have no defects

Answer 11

- QUALITY AUDITS: assessment of quality practices of entity, results in identifying strengths/weaknesses, and a quality improvement plan to produce greater short-term and long-term returns - GAP ANALYSIS: assessment of any gaps between entity's practices and best practices industry operated in - identifies areas for improvement and a common objectives database entity will use to develop strategic improvements - THEORY OF CONSTRAINTS: set of strategies to maximize income when entity facing one or more constraints or bottlenecks in its processes - basic idea, when faced with this in production of some kind, should focus on producing product with highest contribution margin involving constrained resource (labor hours, specific raw material, machine hours)

Answer 12

budget process always starts with a sales forecast, then everything else is budgeted based on level of sales - MASTER BUDGET/STATIC BUDGET: comprehensive plan for all activities of company, based on budgeted costs based on budgeted output - top down approach, starts with goals/mission and allocates resources accordingly - FLEXIBLE BUDGET: budget adjusted during year based on actual output LEFT = Actual MIDDLE = Flexible RIGHT = Static IN BETWEEN = variances (favorable or unfavorable)

Answer 13

- INCREMENTAL budget: rolling budget, adds current period and drops oldest period - PRODUCTION budget: outlines how many units need to be produced to achieve sales goals, done before purchasing budget - PARTICIPATING budget: managers prepare own budgets, then are reviewed by supervisors

Answer 14

``` + Beg Inventory + Purchases = Goods Available for Sale - End Inventory = Cost of Goods Sold ```

Answer 15

``` + Beg Cash Balance + Cash Sales - Cash Expenditures +/- Change in AR +/- Change in AP = End Cash Balance ```

Answer 16

- if AR increases, Cash decreases (A-opposite) - if AR decreases, Cash increases (A-opposite) - if AP increases, Cash increases (L-same) - if AP decreases, Cash decreases (L-same)

Answer 17

attempt to see into future as much as possible to make more informed decisions on organizational objectives, goals, processes, systems, products to put in place to achieve those objectives use a combination of quantitative and qualitative methods - QUANTITATIVE- use historical data (forecast) - QUALITITATIVE- use judgement to create assumptions (projection)

Answer 18

FORECAST - based on historical data and actual expectations instead of hypothetical scenarios PROJECTION - based on hypothetical scenario or course of action that business could take, usually used internally

Answer 19

financial budget & operating budget financial budget (BS) - cash and capital expenditures operating budget (IS) - revenues and expenses

Answer 20

1) sales budget prepared (based on sales forecast) 2) production budget prepared (to meet sales expectations) 3) direct materials purchases budget prepared 4) direct labor budget prepared 5) overhead budget prepared 6) ending finished goods inventory budget prepared 7) COGS budget prepared (after knowing beginning finished goods in inventory) 8) nonmanufacturing budget prepared (selling, general and administrative expenses) use all above data to create budgeted income statement