Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
161 Cards in this Set
- Front
- Back
|
Five Steps in the Decision Making Process |
1. Identify the decision problem (issues) 2. Determine the decision alternatives 3. Evaluate the costs and benefits of the alternatives 4. Make the decision 5. Review the results of the decision |
|
|
One point for identify the decision problem |
the problem, NOT the system |
|
|
One point for evaluate the costs and benefits of the alternatives |
select alternatives where the benefits outweigh the cost |
|
|
One point for review the results of the decision |
Evaluate the decision after you've implemented it |
|
|
decisions involve a choice among alternative courses of action |
incremental analysis |
|
|
Two steps for incremental analysis |
1. Identity the decision alternatives 2. Identify the probable effects of those decisions on future earnings (cost - benefit) |
|
|
Why is identifying the decision alternatives a critical step? |
If left off in the initial stage, you won't look at it later. |
|
|
Qualitative issues must always... |
be considered in any decision |
|
|
able to impact the decision at hand |
relevant data |
|
|
Just because it's relevant for one decision... |
doesn't mean it's relevant for another |
|
|
Two points for relevant data |
1. costs and revenues that occur in the future 2. differ across alternatives should be the only factors to be considered |
|
|
costs that have already been incurred and will not change or be avoided by any future decision (never relevant) |
sunk costs |
|
|
the foregone benefit (lost opportunity) that occurs from choosing one alternative over another. |
Opportunity costs |
|
|
What is the opportunity cost associated with? |
the choice that you DO NOT select |
|
|
a measure of the limit placed on a specific resource |
capacity |
|
|
unused part of the resource; More than enough ability to satisfy additional demand of the resource |
Idle (excess) |
|
|
Why would you have idle capacity? |
If you made those units, you couldn't sell them, so you don't make them. |
|
|
the limit on more or more resource has been reached and doing one thing means giving up the opportunity to do something else |
Full |
|
|
Capacity is usually easier to see on a... |
progression line |
|
|
total number of units you can make |
capacity |
|
|
the difference between full and normal (full - normal) |
excess or "idle" capacity |
|
|
determined by each individual business; level at which we can usually operate because we can sell that number of units |
normal capacity |
|
|
max units that can be made |
full capacity |
|
|
Four types of decisions |
Special Order or Accept Order at a special price Make or Buy Keep or Drop Sell or Process Further |
|
|
one time decision only; not a regular customer; no repeating |
special order or Accept order at a special (reduced) price |
|
|
What do you have to do with an order at a reduced price? |
Make it clear that if they continue, they don't get the lower price |
|
|
Special Order or Accept Order at a Special Price -Always consider ________ _____ -Only consider __________ ______ -Consider if you ___________ ________ ______ __________ ______ |
capacity first relevant costs cannibalize current sales qualitative issue |
|
|
Which costs are always relevant for a special order? |
Variable costs |
|
|
When are Fixed costs relevant in a special order? |
Only if they change (new part) |
|
|
could impact long term pricing decisions |
Qualitative issue |
|
|
What is cannibalizing sales? |
Taking sales from regular customers |
|
|
Special Order or Special Price decision |
Offer Price - New Variable Costs - New Fixed Costs or Other Costs = Balance of Offer Price |
|
|
How do you make your decision? |
If Balance of Offer Price is positive, accept If Balance of Offer Price is negative, reject |
|
|
Always convert... |
unit fixed costs to total fixed costs |
|
|
these decisions are commonly referred to as insourcing vs. outsourcing |
Make or Buy |
|
|
Make formula: |
Direct Materials + Direct Labor Cost + Variable Overhead + Fixed Overhead = Total |
|
|
Buy Formula |
Fixed Overhead + Purchase Price = Total |
|
|
Which one do you pick in make or buy? |
The smaller total. |
|
|
What does the total difference column tell you? |
whether you will make or lose money by choosing buy |
|
|
Four qualitative issues |
packaging standards supplier reliability demand for product future pricing increases |
|
|
look at profitability of the segment. Beware to use segment margin when making decisions |
Keep or Drop (continue or discontinue) a segment) |
|
|
Two types of fixed costs in Keep or Drop decisions |
Direct Fixed Costs Common (indirect, allocated) fixed costs |
|
|
those that can be attributed to a specific segment of the business and go away if that segment is eliminated |
direct fixed costs |
|
|
shared by multiple segments and will remain even if one segment is eliminated |
common (indirect, allocated) |
|
|
When do you keep a segment? |
If segment (division) margin is positive (can still absorb other corporation allocated costs |
|
|
When do you dispose of a segment? |
If segment (division) margin is negative and continues to drain income of the corporation |
|
|
substitute products vs. complementary products |
qualitative |
|
|
Keep or Drop Formula |
Sales - Variable Costs = Contribution Margin - Direct Fixed Costs (goes away) = Segment Margin - Common Fixed Costs (remains) = Net Income/Loss |
|
|
Should you keep the division or not? |
If segment margin is positive, keep. If segment margin is negative, eliminate |
|
|
sell at some point or process more |
sell or process further |
|
|
Two points for sell or process further |
1. process as long as incremental revenues are greater than incremental costs 2. multiple products - joint products - all costs incurred prior to the point at which two products are separately identifiable |
|
|
What is the split-off point? |
The original selling price |
|
|
Formula for sell or process further |
New Selling Price - Old Selling Price = difference - Further Processing Costs = Balance |
|
|
How do you decide if you could sell or process further? |
If the balance is positive, process it to the end. If the balance is negative, spell at split off. If the balance is zero, you are indifferent. |
|
|
Joint costs are __________ to any decision made after the split off point. |
irrelevant |
|
|
looks at sales mix and how funds and space should be allocated to particular items or areas |
Constrained (limited) resources |
|
|
If you make more than one |
multiply |
|
|
If you make less than one per resource... |
divide |
|
|
Four directions for Constrained resources |
1. Find CM/unit 2. Convert CM/unit to CM per resource 3. Rank items in #2 4. Consider demand |
|
|
Sell more of the units that have the highest contribution margin per ________ |
resource |
|
|
Four more steps to constrained limits: 1. Determine the ___________ __________ ___________ of the organization. 2. Find the contribution margin ___ ____ of the limited resource. Determined by ________ or ___________ the $ contribution margin per unit of each product _____ the number of units of the ________ _________ required for each product. 3. Select the item that generates the ________ contribution margin ___ ______ of limited resource. 4. To maximize net income, the units that generate the ______ contribution margin ___ ____ of limited resource should be produced |
appropriate limiting resource per unit dividing or multiplying times limited resource higher per unit higher per unit
|
|
|
Three functions of management |
planning directing/leading controlling |
|
|
the process of setting goals and objectives |
planning |
|
|
long term; general; not very quantitative |
strategic |
|
|
short term; more specific actions; more quantitative |
tactical |
|
|
operations for longer than one year; less detailed |
long-term |
|
|
operations in the next year; a lot more detail in terms of numbers |
short-term |
|
|
implementation of the plan; making sure we have resources |
directing/leading |
|
|
Two types of planning |
strategic tactical |
|
|
backward looking part to see if goals were met |
controlling |
|
|
a formal written statement of management's plans for a specified future time period, expressed in financial terms. Used as a planning and communication tool for management |
budget |
|
|
Four benefits of budgeting: 1. requires _______ __ ___ _______ 2. provides ____________ __________ ___ ____________; Facilitates the ____________ __ ___________; results in _________ ______________ ___________ of the overall operations 3. Creates an _____ ________ _______ for potential problems 4. __________ ______________ to meet planned objectives and can be used to reward employees performance |
looking to the future communication within the organization coordination of activities greater management awareness early warning system motivates personnel
|
|
|
the impact of ______ _________ should always be considered |
human behavior |
|
|
Three points for human behavior |
participative budgeting : each level should participate in development bottom up verses top down approaches budgetary slack : potential disadvantage through underestimation of revenues or overestimation of expenses |
|
|
get directives and you have to do it |
top down |
|
|
part of it; increases motivation |
bottom-up |
|
|
Using slack when there are large fluctuations that are... |
out of the manager's control |
|
|
Continuous (rolling budgets) that extend _ ________ _______ into the future. When one period ends, another is ________ ____ ___ ___ ___. |
a certain period automatically added at the end |
|
|
a comprehensive set of budgets that cover all phases of an organization's planned activities for a specific period of time |
Master budget |
|
|
Budgets in the Master Budget (2) |
Operating budgets Financial budgets
|
|
|
cover the organization's planned operating activities for a particular period |
Operating budgets |
|
|
The operating budgets are the individual budgets that... |
result in the preparation of the budgeted income statement |
|
|
Seven Operational budgets |
sales production raw materials purchases direct labor manufacturing overhead cost of goods sold selling and administrative expense
|
|
|
prepare cash receipts from this budget |
sales |
|
|
prepare cash disbursements from this budget |
raw materials purchases |
|
|
cost of our product for what we SOLD, not what we made |
Cost of Goods Sold |
|
|
focus primarily on the cash resources needed to support operations and planned capital expenditures. |
Financial budgets |
|
|
Financial budgets are the individual budgets that will... |
impact the preparation of the budgeted balance sheet |
|
|
Two Financial Budgets |
Cash budget Capital expenditures
|
|
|
Two cash budgets |
Cash collections (receipts) Cash payments (disbursements) |
|
|
start with a low price and go up |
market penetration |
|
|
start with a high price and go down |
market skimming |
|
|
1st prepared and starts with a sales forecast |
sales |
|
|
Formula for Sales budget |
Expected Unit Sales x Unit selling price = total sales revenue |
|
|
Sales budget does not represent what we ____, but tells us what customers ___. |
made owe |
|
|
shoes the units to be produced to meet anticipated sales |
Production budget |
|
|
What is essential in scheduling production requirements? |
a realistic estimate of ending inventory |
|
|
What does the production budget show us? |
what we have to make to meet the current sales level and make sure our customers don't go elsewhere |
|
|
What is the formula for Production budget? |
Expected Unit Sales + desired ending finished goods units = total required units - beginning finished goods units = required production units |
|
|
what is desired ending finished goods units also called? |
safety stock |
|
|
shows both the quantity and cost of direct materials to be purchased |
Raw Materials Purchases Budget |
|
|
Formula for raw materials purchases budget |
Expected units to be produced x Quantity of materials per unit = Total raw materials needed for production + desired ending materials inventory = total materials required - beginning direct materials = direct materials to be purchased x cost per each = total cost of direct materials purchases |
|
|
contains the quantity (hours) and cost of necessary to meet production requirements |
Direct Labor |
|
|
Formula for Direct Labor BUdget |
Expected Units to be produced x Direct labor time (hours) per unit = Total required direct labor hours x Direct labor cost per hour = Total direct labor cost |
|
|
shows the expected manufacturing overhead costs for the budget period. It can be based on the production budget or some other activity based. |
Manufacturing Overhead Budget |
|
|
MOH budget formula |
variable costs amount of product (based on sales) x quantity of production driver = total variable costs + fixed costs = total manufacturing overhead/activity base = manufacturing overhead rate per activity base |
|
|
reflects the costs that were incurred to make only the units that were sold during the period and willl be used on the income statement |
Cost of Goods Sold Budget |
|
|
The portion of the total costs that remain in inventory for units not sold will be shown... |
on the budgeted income statement at a later time |
|
|
Formula for COGS budget |
budgeted units to be sold x budget manufacturing cost per unit = budgeted cost of goods sold |
|
|
What is the budgeted manufacturing cost per unit made up of? |
direct materials direct labor variable overhead fixed overhead |
|
|
projects anticipated selling and administrative expenses for the budget period; uses sales units as the starting point. |
selling and administrative expenses |
|
|
Formula for selling and administrative expenses |
variable expenses based on unit sales x variable rate per unit = total variable costs + fixed expenses = total selling and administrative expenses |
|
|
Two points for prepare the cash receipts schedule |
1. determine the payment 2. write percentages and calculate |
|
|
Amount paid each month |
Payment percentages for each month + direct labor + cash overhead + selling and administrative + cash for equipment |
|
|
shows the anticipated cash flows. |
Cash budgets |
|
|
Three sections of the cash budget |
cash receipts cash disbursements financing |
|
|
includes expected receipts from sales and selling of assets (marketable securities) or stocks |
cash receipts |
|
|
payments for direct materials, direct labor, manufacturing overhead, selling and administrative expenses, dividends, and the purchase of assets |
cash disbursements |
|
|
Do not include depreciation in disbursements why? |
Because you only pay for something once |
|
|
shows expected borrowing and the repayment of the borrowed funds plus interest |
financing |
|
|
Formula for cash budgets |
beg cash balance + cash receipts = total available cash - cash disbursements =excess (deficiency of cash) +-borrow(repay) =ending cash balance required |
|
|
If overhead amount has depreciation... |
you have to remove it |
|
|
Three other industries that use budgeting besides manufacturing companies |
retailers service enterprises not-for-profit organizations |
|
|
industry that purchases goods ready for resale |
retailers |
|
|
industry that provides labor and intellectual skills to the public |
service enterprises |
|
|
governmental industries that seek to generate receipts sufficient to cover expenditures |
Not-for-Profit Organizations |
|
|
essentially the same; predetermined unit costs that are used as a measure of performance |
standards and budgets |
|
|
usually relates to a unit amount |
standard |
|
|
represents optimum levels of achievable performance under PERFECT operating conditions |
Ideal |
|
|
efficient levels of performance that are ACHIEVABLE under expected operating conditions; rigorous or tight |
normal (attainable or practical) |
|
|
no challenges |
loose standards |
|
|
the amount of inputs and the price for those inputs that should be required to make a perfect unit of product (outcome) and suggested price |
standards |
|
|
Standard unit of cost is the... |
expected cost to produce one unit based on standard prices and quantities |
|
|
a budget based on a single level of activity; not good to use if actual activity is very different from planned |
static |
|
|
changes the costs and revenues for different levels of activities to compare to actual |
flexible |
|
|
Three points for flexible budgets |
a series of static budgets results is variance analysis done for comparison purposes |
|
|
Two standards for cost components |
DM price std. DM quantity std. |
|
|
cost/unit of DM that SHOULD BE INCURRED |
DM price std. |
|
|
amount of DM that should be used per unit |
DM quantity standard |
|
|
Standard DM cost/unit = |
DM price standard x DM quantity standard |
|
|
when we get something |
freight in |
|
|
not included in direct labor because this is indirect labor because the project hasn't started yet |
receiving |
|
|
Three things for price |
cost of materials freight in receiving/handling |
|
|
Two things for quantity |
amount of materials in the finished product allowance for normal waste |
|
|
Total unit cost is always... |
a DISTRACTOR: :O |
|
|
not included in the material number because we don't expect it |
abnormal waste |
|
|
price/hour that should be paid |
DL price (rate) standard |
|
|
time that should be used to make one good unit |
DL quantity (efficiency) standard |
|
|
Standard DL cost per unit = |
DL price standard x DL quantity standard |
|
|
Three things for price for labor |
labor rate payroll taxes fringe benefits |
|
|
Quantity for labor |
production time set-up/down time rest/break time for employees |
|
|
budgeted OH divided by expected activity |
Overhead standards |
|
|
Overhead should be... |
separated into fixed and variable portions |
|
|
VOH = |
total estimated VOH $ / total estimated VOH driver |
|
|
FOH = |
total estimated fixed OH cost / total estimated FOH driver |
|
|
For the three poles, what are their titles? |
1. Actual Cost 2. Budgeted Input 3. Budgeted Output |
|
|
What is the difference between pole 1 and pole 2? |
Price variance or rate variance |
|
|
What is the difference between pole 2 and pole 3? |
Quantity variance or efficiency variance |
|
|
Pole 1: __ x __ Pole 2: __ x __ Pole 3: __ x __ |
Actual price x Actual Quantity/hours/rate Standard price x actual quantity standard price x standard quantity allowed (std amount * good output) |
|
|
If the number is negative, it is... |
favorable |
|
|
If the number is positive, it is... |
unfavorable |
