Chapter 4 BEC

  1. Manufacturing Cost Elements
    • Direct Material
    • Direct Labor
    • Manufacturing Overhead
  2. What is Conversion Cost and Period Cost?
    • Conversion Cost -Represents the manufacturing costs to convert raw material into finished product. 
    • *Direct Labor + Manufacturing overhead

    Prime Cost=Direct Material + Direct Labor
  3. What product Cost and Period Cost?
    Product cost are Inventoriable and expensed when the goods are sold.

    Period Cost are cost not incurring in the production of the good and are not inventoried. 
  4. Name the different type of cost behaviors.
    • Fixed Cost- Cost that remain constant in total within a given period of time and relavent relevant range. 
    • Variable Cost- cost that remain constant per unti but that vary in total in direct proportion to changes in the level of activity. 
    • Mixed Cost (Semivariable)- Comprised of both variable and fixed cost
    • step-variable cost- Costs that are relatively fixed over a small range of output, but are variable over a large range of output.
  5. Cost-Volume-profit-analysis (breakeven analysis)
    • Determines the effects of the selling and production volume on revenue, costs, and net income. 
    • Assumption:
    • *selling price is constant
    • *cost are linear
    • *sales mix is constant
    • *Inventories do not change
  6. What is Breakeven point?
    The point where sales less fixed and variable cost result in zero profit. Net income is equaled to zero
  7. How to determine the target sales?
    Using the contribution Method:

    In Units

    • Fixed Cost + Desired net income
    • United contribution margin

    In Sales Dollars

    • Fixed cost + Desired net income
    • Contribution margin ratio
  8. What is margin of safety?
    Excess of budgeted or actual sales over the breakeven volume of sales.

    • Formula in $:
    • Total Sales - Breakeven sales 

    • Formula in %
    • M/S in $/Total Sales
  9. Types of Special Decision
    • To accept special order
    • Make or Buy
    • Scrap or Rework
    • Sell or Process further
    • Eliminate product line or division
  10. How do you account for Direct labor over time?
    Direct labor overtime is recorded as MOH unless it is a rush or special order  than it is expensed to DL of that product.
  11. 4 Perspective of the Balance Scorecard
    a.   Financial.  This perspective focuses on return on investment and other supporting financial performance measures.

     b.   Customer. This perspective focuses on performance in areas that are most critical to the customer.  

    c.   Internal business processes.  This perspective focuses on operating effectively and efficiently and includes performance measures on cost, quality, and time for the processes that are critical to the customers.  

    d.   Learning and growth. This perspective focuses on performance measures relating to employees, infrastructure, teaming and capabilities necessary for the internal processes to achieve customer and financial objectives.
  12. Components of the Balanced Scorecard
    Strategic objectives. A statement of what the strategy must achieve and what is critical to its success.

    b.   Performance measures:  Describe how success in achieving the strategy will be measured and tracked.

    c.   Baseline performance. The current level of performance for the performance measure.

    d.   Targets. The level of performance or rate of improvement needed in the performance measure.

    e.   Strategic initiatives. Key action programs required to achieve strategic objectives
    Control Charts: Statistcal plot that help detect deviation before they general defects

    Pareto Diagrams: displays the cumulative occurrence of the problems.

    Cause and Effect (Fishbone) Diagram: Identifies defect
  14. What is six-sigma
    Six-sigma measures how close a product comes to meet the company's quality goal. 99.999997 with 3.4 defects per millon parts.
  15. Quality control 
    • conformance cost
    • 1.  Prevention costs are incurred to prevent the production of defective units.  This includes such cost elements as: a. Employee training b. Inspection expenses c. Preventive maintenance d. Redesign of product e. f. Redesign of processes Search for higher quality suppliers

    • 2. Appraisal costs are incurred to discover and remove defective parts before they are shipped to the customer or the next department.  These costs include: a. Statistical quality checks b. Testing c.  Inspection d. Maintenance of the laboratory
    • Noncomformance:
    • 1. Internal Failure Internal failure costs are the costs to cure a defect discovered before the product is sent to the customer.  These costs include: a. Rework costs b. Scrap c. Tooling changes d. Costs to dispose e. Cost of the lost unit f. Downtime

    2. External Failure External failure costs are the costs to cure a defect discovered after the product is sent to the customer.  These costs include: a. Warranty costs b. Cost of returning the good c. Liability claims d. Lost customers e. Re-engineering an external failure
Card Set
Chapter 4 BEC
Decision Making