midterm 2

production

the creation of goods using land, labor, materials, capital, entrepreneurship, and knowledge (factors of production)

production management

all the activities managers engage in to help firms create goods

operations management

a specialized area in management that converts or transforms resources into goods/services

includes: inventory, management, quality control, production scheduling, follow up services

the production process

INPUTS: land, labor, materials, capital, entrepreneurship, knowledge

PRODUCTION CONTROL: planning, routing, scheduling, dispatching, follow up

OUTPUTS: goods, services, ideas

types of production operations

process manufacturing and assembly process

process manufacturing

the part of production that physically or chemically changes materials

assembly process

the part of production that puts together components

continuous process

long production runs turn out finished goods over time

intermittent process

production runs are short and the producer adjusts machines frequently to make different products

objective of operations management

provide high quality goods and services in response to customer demand

computer-aided design (CAD)

the use of computers in the design of products

computer-aided manufacturing (CAM)

the use of computers in the manufacturing of products

computer-integrated manufacturing (CIM)

uniting of computer aided design with computer aided manufacturing

- expensive but cuts 80% of time to program machines to make parts

mass customization

tailoring products to meet the needs of a large number of individual customers

robotics

allows manufacturing to occur 24h/day

sensors can detect problems immediately, changes are made quickly, nano manufacturing can manipulate material on a molecular level

information technology

gives firm increased flexibility in location

facility layout

physical arrangement of resources, including people, to most efficiently produce goods and provide services

- depends on processes performed

- service: helps customers find products, improves efficiency

assembly line layout

workers do only a few tasks at a time

modular layout

teams produce more complex units of final product

fixed position layout

allows workers to congregate around product (ex: working on a cruise ship or around an airplane)

purchasing function:

searches for high quality material resources, finds the best suppliers, negotiates best price for goods/services

- internet has transformed purchasing

just in time inventory control

production process in which a minimum of inventory is kept and parts, supplies, and other needs are delivered just in time to go on the assembly line

- requires EXCELLENT coordination with suppliers

quality

consistently producing what the customer wants while reducing errors before and after delivery

six sigma quality

quality measure that allows only 3.4 defects per million opportunities

lean manufacturing

using fewer resources compared to mass production

lean companies

take 1/2 the human effort, require 1/3 the engineering effort, use 1/2 the floor space, carry 90% less inventory, have 1/2 the defects in products

control procedures

PERT & Gantt chart

PERT

program evaluation and review technique

-method for analyzing the tasks involved in completing a given project and estimating the time needed

PERT steps

1. analyzing and sequencing tasks

2. estimating time needed to complete each task

3. draw PERT network of first two steps

4. identify critical path (sequence of tasks that takes longest to complete)

gantt chart

bar graph of current projects and completion status

flexible manufacturing

designing machines to do multiple tasks so they can produce a variety of products

materials requirement planning

a computer-based operations management system that uses sales forecasts to make sure needed parts and materials are available at the right time and place

accounting

recording, classifying, summarizing, interpreting of financial events and transactions in an organization to provide interested parties needed financial information

interested parties (financial info)

employees, owners, creditors, unions, investors, government

accounting system

INPUTS (accounting documents): sales documents, purchasing documents, shipping documents, payroll records, bank records, travel records, entertainment records

PROCESSING: 1) entries are made in journals, recordings 2) the effects of these journal entries are transferred or posted into ledgers, classifying 3) all accounts are summarized

OUTPUTS (financial statements): balance sheet, income statement, statement of cash flow, other annual reports

accounting progression

1. analyze source documents (sales slips, travel records, etc)

2. record transactions in journals

3. transfer (post) journal entries to ledger

4. take a trial balance

5. prepare financial statements

6. analyze financial statements

managerial accounting

provides info and analysis to managers inside the organization to assist them in decision making

involved in: costs of production and marketing, preparation and control of budgets, minimizing tax liabilities

financial accounting

financial information and analysis generated primarily for people outside the organization

annual report

yearly statement of the financial condition, progress, and expectations of the firm

goal of business

to create wealth for its owners

ASSETS= LIABILITIES + OWNERS EQUITY

ASSETS= LIABILITIES + OWNERS EQUITY

REVENUE- EXPENSE=PROFIT

REVENUE-EXPENSE=PROFIT

financial statements

summary of all the financial transactions that have occurred over a particular period

key financial statements

balance sheets, income statements, statement of cash flow

assets

the amount of "stuff" the firm controls

liabilities

the debt claims against the stuff

owner's equity

owner's claims (what they actually own) of the stuff

retained earnings

value of owner's profits they choose to reinvest

inventory (value)

value of the products that has been acquired for sale and still on hand

accounts payable

amount that you owe to your suppliers for materials purchased on credit

income statement

story of transactions over a specific period of time

revenue transactions

business and its customers

expense transactions

business and its supplies- such as resources, people, capital

net income (also profit/loss)

difference between revenue and expense

variable costs (cost of goods sold)

the more you make, the greater the cost

- labor used to make product/service

- materials used to make product/service

- cost of keeping inventory

fixed costs (operating expense)

cost of being in business that month

- selling expenses

- administrative expenses

REVENUE= # OF UNITS SOLD X PRICE

REVENUE= # OF UNITS SOLD X PRICE

CONTRIBUTION MARGIN = SALES - VARIABLE COSTS

CONTRIBUTION MARGIN = SALES - VARIABLE COSTS

cash flow statement

movement of cash in and out of a firm over a period of time; how much cash is available for use in a given period of time, reconciles net profit back to cash

balance sheet

tells the story of working capital, investing financing

investing

build a new factory, increase capacity, increase automation, increase plant and equipment

- follows that any increase in the value of p&e is an investment in your firm

operating

using the money you have to:

create goods and transactions, change goods into dollars (at a profit)

investing

what do you do with the money?

acquire assets (stuff) to run a firm, renting $ to others (who earn a higher return)

financing

where do you get money?

funds to start and grow a firm (debt/equity/retained earnings)

financial management

identify an opportunity in the market

develop a strategy for serving customers

acquire resources / commitments

financing strategy

borrow from external sources or from investors (owners)

debt financing

borrow money from a financial institution (bank, savings, loan), or borrow money from the market (bonds)

borrow from financial institution

make application

determines whether to make loan or not basket on risk

higher the risk, higher the interest rate

CONTRACT- terms cannot be changed

borrow from the market

bonds

long term: 10+ years

risk: rated by standard and poors or moody

return: degree or risk and interest rate

bond

form of long term debt for a firm

- like a home mortgage for an individual

equity financing

another way to bring cash into the business

- rather than borrowing funds, it involves taking on new owners

- this can dilute the ownership of previous stockholders and can be a negative

securities markets

primary and secondary markets

primary market

firm sells new issues of security (stock or bonds) publicly for the first time to investment bankers (underwriters)

secondary market

subsequent owners trade previously issued shares of stock and bonds (NYSE, AMEX, London, Jakarta)

AAA

best/highest possible rating for a bond

owner's rights: stock

if you as an individual purchase stock:

- you give the firm money

- you now own the piece of the firm

- you benefit when stock prices increase

- you benefit when firm issues dividends

stock owners share in risk and rewards

BOOK VALUE= OWNERS EQUITY/ # OF SHARES

BOOK VALUE= OWNERS EQUITY/ # OF SHARES

EARNINGS PER SHARE = NET INCOME / # OF SHARES

EARNINGS PER SHARE = NET INCOME / # OF SHARES

dividend

cash payment to owners from profits

YIELD= DIVIDEND/PRICE

YIELD= DIVIDEND / PRICE

CURRENT RATIO= CURRENT ASSETS / CURRENT LIABILITIES

CURRENT RATIO= CURRENT ASSETS / CURRENT LIABILITIES

QUICK/ACID RATIO = CURRENT ASSETS - INVENTORIES / CURRENT LIABILITIES

QUICK/ACID RATIO = CURRENT ASSETS - INVENTORIES / CURRENT LIABILITIES

current ratio

bigger= better. bigger= more assets, lower risk for bank

time value of money

$1 today is always worth more than $1 tomorrow

leverage ratios

evaluate a firms debt

DEBT TO EQUITY RATIO = TOTAL DEBT/ TOTAL OWNER'S EQUITY

DEBT TO EQUITY RATIO = TOTAL DEBT/ TOTAL OWNER'S EQUITY

debt to equity ratio

- measures debt vs equity owned in an asset

- compares amount you owe to the amount you own

- ability of shareholder equity to cover all outstanding debts

- the lower the ratio, the less you owe

high debt/equity ratio

indicates that a firm has been aggressive in financing growth with debt

- can result in volatile earnings due to interest expense

- debt/equity ratio > 2.0 = risky; varies by industry

money

anything people generally accept as payment for goods/services

barter

direct trading of goods/services for other goods/services

standards for a useful form of money

portability, divisibility, stability, durability, uniqueness

falling dollar value (weak)

amount of goods/services you can buy with $1 decreases

rising dollar value (strong)

amount of goods/services you can buy with $1 increases

impact of falling dollar

- us tourism increases: good for hotels, resorts, theme parks, retailers

- overseas demand for us products rises

- favorable exchange rate of us firms increase profits in foreign markets

federal reserve's dual mandate

maintain maximum employment while keeping prices stable (control inflation)

inflation

too much money chasing too few goods

deflation

prices decrease due to a surplus of goods and services relative to money

money supply

amount of money the federal reserve bank makes available for people to buy goods and services

reserve requirement

percentage of commercial banks checking and savings accounts that must be physically kept in the bank

open market operations

buying and selling of us government bonds by the fed with the goal of regulating the money supply