Exam 3 Review

Know the different control centers (i.e. cost, revenue, investment, profit) and know which positions manage each of these (i.e. CEO manages all)

cost - the manager is accountable for costs only revenue - the manager is accountable for revenues only profit - the manager is accountable for revenues and costs investment - the manager is accountable for investments, revenues, and costs

know each of the major level 3 variances and where in the process they are influenced/calculated/isolated.

direct materials price and efficiency variance and direct manufacturing labor price and efficiency variance

Kaizen - know purpose and how it is used

incorporating continuous improvement factors in the business process. usually the employees coming up with ideas to improve continuously as they are the ones that are hands on working.

understand sensitivity analysis

used to assist managers in planning and budgeting a "what if" technique that illustrates the impact of changes from the predicted data.

know why we budget and calculate/analyze variances. define a budget

variances provide managers with early warning of problems, a basis for performance evaluation, and a basis for strategy evaluation. A budget is a tool we can use to measure performance, motivate employees, get employee buy-in (ownership) of goals of company, and to communicate goals of company Budget: the quantitative expression of a proposed plan of action by management for a specified period, and an aid to coordinating what needs to be done to implement that plan. May include financial and nonfinancial data.

know primary reason why cost is assigned and not allocated

be able to identify if you can directly relate it to cost object

know the order preparing the budget (exhibit 6-2)

1. prepare the revenues budget 2. prepare the production budget (in units) 3. prepare the direct material budget and direct material purchases budget 4. prepare the direct manufacturing labor costs budget 5. prepare the manufacturing overhead costs budget 6. prepare the ending inventories budget 7. prepare the cost of goods sold budget 8. prepare the nonmanufacturing costs budget 9. prepare the budgeted income statement

know the time coverage of a budget and what criteria determines the time coverage

The most frequently used budget period is 1 year, which is often subdivided into quarters and months.

be able to list the potential root causes for level 2 and level 3 variances (why)

a. Direct Material price variance (U) - vendors increase prices, vendor volume/cash vs budget, bad budget, economic supply chain issue/inflation, raw materials quality issue. purchasing dept in charge of this and effects purchasing order. b. direct material efficiency variance (F) - quality (less scrap), more efficient workers (less training), better planning, better machine technology, less material substitutions. Production management, quality control, purchasing dept, and r&d control this and effects material use. c. manufacturing price variance (f) - delayed a wage increase, newer employees (less rate), less o/t premium, work in another country, lower fringe benefit costs. human resources and production dept controls and o/t - schedule workers, wage rate- sign rate/communicate are effected. d. manufacturing labor efficiency variance (u) - bad quality, distraction (bad management/poor planning), equipment issue (equipment downtime), indirect hours higher, smaller batches (higher changeovers), lower quality workers, absenteeism. produciton managers, maintenance, and hr control this.

be able to identify which managers have control over which level 3 variances and costs

production dept, human resources, quality control,

understand benchmarking and when and why it is used

the continuous process of comparing the levels of performance in producing products and services against the best levels of performance in competing companies.