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What is the difference between Contribution Margin and Controllable Margin?
- The Contribution Margin is the Revenues - Variable manufacturing and overhead costs. This represents the amount of money contributed toward paying for fixed costs.
- The Controllable Margin includes the controllable portion of Fixed Costs.
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What is the purpose of performance measures?
Measurements designed to motivate employees and/or managers to improve performance.
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What is the Total Factor Ratio? What type of performance measure is this designed to provide? What is another name for this ratio?
- aka Total Productivity Ratio
- All output produced (units) / All costs to produce those units
- A measure of production efficiency
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How is a Control Chart used? What type of performance measure is this designed to provide? What is another name for this measure?
- "Goalpost" chart
- To determine if a process is operating within its optimum parameters.
- Trend analysis designed to identify defects in either process or product.
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What does a Pareto Diagram show? What type of performance measure is this
designed to provide?
- The frequency of defects from highest frequency to lowest plus a line above showing the cumulative effects
- Designed to identify defects
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Scorecards -- measurements of financial success must be based on what foundation?
The factors that managers can control or influence.
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Give an example of each of the following: (1) Cost strategic business unit (SBU), (2) revenue SBU, and (3) profit SBU
- (1) production dept
- (2) sale dept
- (3) division manager
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Which accounting system uses strategic business units (SBUs)? What type of SBUs are used?
- Responsibility Accounting System
- Cost SBU
- Revenue SBU
- Profit SBU
- Investment SBU
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Contribution reporting is best used as a performance measure for which type of SBU?
Profit SBU because contribution reporting has both revenue and costs.
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What is the purpose of the Balanced Scorecard? What does it include?
- The show how managers of Profit SBUs are performing not only financially, but on multiple dimensions.
- (1) Financial
- (2) Internal business processes= effectiveness & efficiency of operations.
- (3) Customer satisfaction
- (3) Innovation & HR development
- It doesn't do any good if a manager does well on financial revenues vs costs, but he's irritating all his customers. Revenues will drop if the customers move on.
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How are Balanced Scorecards developed?
- Identify critical success factors
- Create strategic goals
- Develop tactics and the related measures associated with the goals & tactics
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What is the definition of quality?
The product's ability to meet or exceed customer expectations
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Define Conformance Costs. What categories of cost are included?
- Activities that ensure quality.
- Include prevention activities that prevent the production of defective units (employee training, inspection, maintenance, redesign of products or processes, high quality suppliers)
- Include Appraisal activities to discover and remove defects parts after production but before being shipped to the customer (inspection, testing, quality checks, lab maintenance, statistical quality control)
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Define Nonconformance Costs. What categories of cost are included?
- Costs that occur because a defective product has been discovered.
- Internal Failure includes costs to cure a defect before being sent to the customer (rework, scrap, tooling changes, disposal, downtime)
- External Failure includes costs due to a defective product being sent to the customer (loss of a customer, shipping to return the product, liability claim, warranty cost, reengineering)
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Complete the following: An increase in costs for conformance leads to a/an [increase/decrease] in nonconformance costs.
Decrease
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Define economic value added.
A measure of a company's financial performance based on the residual wealth calculated by deducting its cost of capital from its operating profit.
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Financial performance measures focus on [dollar amounts/statistics], which non-financial performance measures focus on [dollar amounts/statistics]
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Which of the following responsibility centers is most like an independent business? (1) revenue center, (2) cost center, (3) profit center, (4) investment center
- Investment center
- Even though a profit center deals with revenues and costs, the investment center also deals with invested capital
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Define responsibility accounting.
Assigning particular revenues and costs to the manager's unit that has the responsibility for making decisions regarding these items.
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A pareto diagram is also called what?
frequency diagram
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Variance analysis is the comparison of what?
actual performance vs expected performance
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In practical terms, what does it mean when Div 3 has a contribution margin 2x compared to Div 2?
Division 3 will provide twice as much toward covering costs of noncontrollable expenses (SG&A, or other fixed costs) compared to Div 2.
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What is a partial productivity ratio?
- Total quantity of output / total quantity (not cost) of a single input
- (according to Becker; the real world is different)
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What are the key components of a responsibility accounting reporting system
- Compiles revenue, cost, and profit information at the level of those individual managers directly responsible for them so that they can appropriately act upon it.
- It is the proper delegation of responsibility and authority.
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Place the following into their respective quality cost categories: (1) employee training, (2) product recalls, (3) scrap, (4) quality inspectors
- (1) prevention
- (2) external failure
- (3) internal failure
- (4) appraisal
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Place the following into their respective quality cost categories: (1) preventive maintenance, (2) supplier education, (3) materials inspection expense, (4) processing product returns
- (1) prevention
- (2) prevention
- (3) preventive
- (4) external failure
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Place the following into their respective quality cost categories: (1) lab maintenance, (2) process redesign, (3) product redesign, (4) tooling changes
- (1) detective
- (2) preventive
- (3) preventive
- (4) internal failure
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