B3

Operations Management

What is a cost object?

Item or purpose for which cost measurement is desired; can have multiple measurements depending on purpose (e.g., inventory for financial vs tax reporting)

What are product costs vs period costs?

Product costs = manufacturing costs (DM, DL, OH), inventoriable; Period costs = SG&A, expensed in period incurred

What are direct vs indirect costs?

Direct: traceable to cost object (DM, DL); Indirect: not traceable, allocated (overhead)

What is cost behavior?

Variable = change with activity; Fixed = constant in total; Mixed = both; relevant range = range where assumptions hold

What are cost accumulation systems?

Job costing = specific jobs/batches; Process costing = large homogenous units with per-unit averages

What is the cost of goods manufactured statement?

Accumulates production costs, adjusts for WIP, shows cost of goods manufactured for a period

What is the cost of goods sold statement?

Similar to COGM but for goods sold; retailers substitute purchases for manufactured costs

What is job-order costing?

Costs accumulated for specific job or batch

What is process costing?

Costs accumulated for large volumes of homogenous items; assigns per-unit cost based on equivalent units

What are equivalent units?

Amount of DM, DL, or conversion cost to complete one finished unit; used to spread costs in process costing

What are FIFO vs Weighted Average methods in process costing?

FIFO: assigns current period costs only, separates beginning inventory; Weighted Average: averages current and beginning inventory costs

What is normal vs abnormal spoilage?

Normal = expected, included in product cost; Abnormal = unexpected, expensed as period cost

What is activity-based costing (ABC)?

Costing method that assigns indirect costs based on resource-consuming activities; uses cost drivers for allocation

What is the direct vs step-down method in ABC?

Direct = allocates service dept costs directly; Step-down = allocates sequentially, partially recognizing inter-service usage

What is joint product/by-product costing?

Allocates joint costs for multiple products from a common process; methods include unit volume or net realizable value

What is benchmarking?

Comparing processes/products/services to industry leaders; categories: process, strategic, performance

What are nonfinancial measures?

Customer retention, employee turnover, labor productivity, ticket response time

What are non-GAAP measures?

EBITDA, free cash flow, core earnings, adjusted net income

What are financial scorecards?

Budget vs actual, variance reports, overall performance analysis

What are SBUs (strategic business units)?

Responsibility segments: cost SBU, revenue SBU, profit SBU, investment SBU

What is a balanced scorecard?

Multi-dimension performance tool; factors: financial, internal business processes, customer satisfaction, innovation/human resources

What are the costs of quality?

Conformance costs (prevention, appraisal); Nonconformance costs (internal failure, external failure)

What is sensitivity analysis?

Tests changes in assumptions/parameters to see impact on outcomes (“what-if analysis”)

What is regression analysis?

Statistical model predicting dependent variable (e.g., cost) based on independent variables; simple = one predictor, multiple = more than one

What is correlation coefficient (r)?

Measures strength of linear relationship (–1 = perfect negative, 0 = none, +1 = perfect positive)

What is the high-low method?

Estimates fixed and variable cost portions using highest and lowest activity levels

What is a learning curve?

As workers repeat tasks, labor hours per unit decline at a constant rate as efficiency increases

What is cost-volume-profit (CVP) analysis?

Determines breakeven point and profit at different sales levels; uses contribution margin approach

What is contribution margin ratio?

Contribution margin ÷ revenue; shows portion of revenue available for fixed costs/profit

What is absorption vs contribution (variable) costing?

Absorption = FOH is product cost (in inventory); Contribution = FOH is period cost; inventory changes cause income differences

What happens to income under absorption vs variable costing?

No inventory change = same; Inventory increase = absorption > variable; Inventory decrease = absorption < variable

What is breakeven analysis?

Breakeven units = fixed costs ÷ CM per unit; breakeven sales $ = fixed costs ÷ CM ratio

What is margin of safety?

Excess of sales over breakeven sales, in $ or %

What is target costing?

Determines allowable product cost to achieve desired profit given market price

What are tactical plans?

Short-term (≤18 months) plans; annual budget is single-use tactical plan

What is a budget committee?

Group overseeing budget preparation; includes senior management guidance

What are standards?

Per-unit budgets used in flexible budgets; ideal = perfect efficiency; currently attainable = normal conditions without extra effort

What is a master budget?

Annual business plan; includes operating and financial budgets (cash, pro forma FS)

What is a sales budget?

Based on forecast; drives production and other budgets

What is a production budget?

Based on units to be produced; supports DM, DL, and OH budgets

What is a selling & admin expense budget?

Expected fixed and variable nonmanufacturing costs

What is a cash budget?

Detailed cash receipts/disbursements projection; shows funds available for debt, dividends, investment

What are pro forma FS?

Forecasted IS, BS, and CF statements based on historical data and management expectations

What is a capital budget?

Planned capital expenditures for a period

What is a flexible budget?

Adjusts for actual production/sales levels; focuses on variances from standards, not just volume

What is ratio analysis?

Compares financial statement items to identify trends and performance; compared over time or to industry/competitors

What are profitability ratios?

Measures of success/failure for a period (e.g., net margin, ROA, ROE)

What are liquidity ratios?

Measure short-term ability to meet obligations (e.g., current ratio, quick ratio)

What are solvency ratios?

Measure long-term security for creditors/investors (e.g., debt to equity, times interest earned)

What are performance metrics?

Measures of operating performance and stock performance (e.g., EPS, total shareholder return)

What are limitations of ratios?

Depend on data reliability; influenced by accounting methods and estimates

What is structured vs unstructured data?

Structured = organized (databases, spreadsheets); Unstructured = text, audio, video, social media, etc.

What are key types of data analytics?

Descriptive (what happened), diagnostic (why it happened), predictive (what will happen), prescriptive (what to do)

What are uses of data analytics in decision making?

Customer/marketing; managerial/operational; risk/compliance; financial; audit; tax