Productions 2 Exam- Queuing Theory, Operations Management: Ch 7, Chapter 10, QUEUING THEORY, Operations Management, Operations Management: Ch 10
Calculating Variances
- Calculate the differences in rates, quantities, and total cost (rate X quantity). > Standard Amount - Actual Amount = Difference or Variance - Calculating the variances: Differences in rates x Actual Quantity
Malcom Baldrige National Quality Award
An award established by the U.S. Department of Commerce given annually to companies that excel in quality, presented by President. (Japan is competition)
Total Cost of Quality
An organization's total cost of quality is the sum of its prevention, appraisal, internal failure, and external failure costs.
Separable Costs
Are additional processing costs incurred beyond the split-off point. Separable costs are attributable to individual products and can be assigned directly.
formula for cost justification of inspection
Avg % defective x cost of defect > cost of inspection
Business process reengineering (BPR)
BPR is an effort to make an extreme transformation by analyzing and considering all aspects of current processes for the purpose of making sweeping improvements. Reengineering is a process-analysis approach that typically results in radical change.
*Financial and Non-Financial Measures of Performance*
Balanced Scorecard and Benchmarking
What are the 2 degrees of patience?
Balking (see it & leave) & Reneging (wait a while, then leave)
Job Costing COGS
Beg WIP + Direct Materials Cost + Direct Labor Costs + Manufacturing OH Applied - Total Manufacturing Costs to account for - Ending WIP = COGM
Explicit services
Benefits that are observable by the senses and that consist of the essential or intrinsic features of the service
Break even graphs
Break even = where Qty at Price intersect Total Costs = Revenues, https://app.efficientlearning.com/pv5/v8/5/content/cpa/html/image_n/cstprof.anls.ST.BEC2017-f003.jpg
Two important break even formualas
Break-Even Units = Fixed Costs / Contribution Margin per Unit Break-Even in Sales Dollars = Fixed Costs / Contribution Margin Ratio
*Planning Techniques*
Budgeting
Price Elasticity Analysis
By definition, the price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Price Elasticity of Demand = %change in Q/%change in price A price is considered elastic if the price elasticity of demand is greater than 1 and inelastic if the elasticity of demand is less than 1.
By-Products
By-products differ from joint products in that they have relatively insignificant sales value when compared to the main product(s). 1. by-products usually are not allocated a share of the joint costs of production. 2. However, when by-products are processed beyond split-off, the additional processing costs are assigned to the by-product. 3. These costs reduce the proceeds ultimately recognized from the sale of the by-product.
8. A service facility has four crews with two members each. The number of "servers" is: A) 8. B) 6. C) 4. D) 2.
C) 4
20. The number of servers in sequence a customer must go through is referred to as: A) Channels. B) Queues. C) Phases. D) Servers.
C) Phases.
2. When we refer to a finite-source queuing system, we are referring to the number of potential: A) servers B) service channels C) customers D) service rates
C) customers.
When we refer to a finite-source queuing system, we are referring to the number of potential: A) servers. B) service channels. C) customers. D) service rates.
C) customers.
4. If there is a limit to the number of possible customers, we are dealing with a(n) __________ system. A) finite-queue B) infinite-queue C) finite-source D) infinite-service
C) finite-source
If there is a limit to the number of possible customers, we are dealing with a(n) __________ system. A) finite-queue B) infinite-queue C) finite-source D) infinite-service
C) finite-source
7. The term queue discipline refers to: A) the willingness of customers to wait in line. B) customers staying in one line, not switching to another line. C) the order in which customers are processed. D) customers who are made to wait in line.
C) the order in which customers are processed
The term queue discipline refers to: A) the willingness of customers to wait in line. B) customers staying in one line, not switching to another line. C) the order in which customers are processed. D) customers who are made to wait in line.
C) the order in which customers are processed
Gas stations, loading docks, and parking lots have infinite potential length of lines for their respective queuing systems.
False
Having animation capabilities to graphically display product flows through a production system is not considered a desirable feature of simulation software systems.
False
In a practical sense, a finite population is one that potentially would form a very long line in relation to the capacity of the serving system.
False
In a practical sense, an infinite queue is one that includes every possible member of the served population
False
Spreadsheet simulations have become obsolete due in part to specialized computer simulation languages like SLAM or SIMAN.
False
The admissions system in a hospital for patients is an example of a single-channel, single-phase queuing system
False
The customer arrivals in a queuing system come almost exclusively from finite populations.
False
The customer arrivals in a queuing system come almost exclusively from infinite populations
False
The demand on a hospital's emergency medical services is considered a controllable arrival pattern of the calling population
False
The leading general- and special-purpose simulation models follow a well-documented and standardized approach
False
The more time, money, and effort you spend developing a simulation model, the more likely you are to achieve useful results.
False
The term "queue discipline" involves the art of controlling surly and unruly customers who have become irritated by waiting.
False
While spreadsheets can be somewhat useful for a variety of simulation problems, they can be confusing and are vulnerable to several drawbacks, including weak routines for random-number selection.
False
*Cost Accounting*
Manufacturing Costs
Common Stock Dividends Payout Rate
Measures the extent (percentage) of earnings distributed to common shareholders. It is computed as: Total basis: C/S Dividend Payout Rate = Cash Dividends to Common Shareholders / Net Income to Common Shareholder Per share basis: C/S Dividend Payout Rate = Cash Dividends per Common Share / Earnings per Common Share
Earnings per Share (EPS—Basic Formula)
Measures the income earned per (average) share of common stock. Indicates ability to pay dividends to common shareholders. It is computed as: EPS (Basic) = Net Income − Preferred Dividends (obligation for the period only) / Weighted Average Number of Shares Outstanding
Price-Earnings Ratio (P/E Ratio)
Measures the price of a share of common stock relative to its latest earnings per share. Indicates a measure of how the market values the stock, especially when compared with other stocks. P/E Ratio (the "Multiple") = Market Price for a Common Share / Earnings per (Common) Share (EPS)
Return on Owners' (All Stockholders') Equity
Measures the rate of return (earnings) on all stockholders' investment
Return on Common Stockholders' Equity
Measures the rate of return (earnings) on common stockholders' equity Return on C/S Equity = Net Income - Preferred Dividend (obligation for the period only)/Average Common Stockholders' Equity (e.g., Beginning + Ending/2)
Common Stock Yield
Measures the rate of return (yield) per share of common stock. It is measured as: Common Stock Yield = Dividend per Common Share / Market Price per Common Share
Spending Variance
Measures variance due to changes in both rates and quantities of overhead items. It is a controllable variance.
Efficiency Variance:
Measures variance due to variations in the efficiency of the base used to allocate overhead (i.e., direct labor hours, machine hours, etc.). As long as the underlying allocation base is under the control of the production manager, it is a controllable variance.
Unique application of poka-yokes in service vs manufacturing
Must often failsafe the customer's actions as well
Return on Investment (ROI)
Net Income / Total Assets
Cost Equation
The relationship between fixed costs, variable costs, and total costs can be expressed in the regression equation:https://app.efficientlearning.com/pv5/v8/5/content/cpa/html/image_n/forecst.tech.ST.BEC2017-f011.jpg Total costs = fixed costs + (vc per unit x # of units) Y = total costs A= fixed costs B= Variable costs per unit x= # of units.
What are the 3 T's
Task to be done, Treatment accorded to the customer, Tangible features of the service facility
Statistical process control (SPC)
Techniques for testing a random sample of output from a process to determine whether the process is producing items within a prescribed range.
process capability
The ability of a process to consistently produce a good or deliver a service with a low probability of generating a defect
Actual OH
The amount actually paid for OH expenses. Dr. Factory OH Control - Utilities Cr. AP
Applied OH
The amount of estimated OH charged to production. Applied OH is calculated by multiplying the POROH by the actual number of units used in production (e.g., DLH or machine hours). Dr. WIP Cr. Factory OH Applied
Applied Overhead
The amount of estimated overhead charged to production. Applied overhead is calculated by multiplying the predetermined overhead rate by the actual number of units used in production (e.g., direct labor hours or machine hours). Dr. WIP Cr. Factory overhead applied
Capital Expenditures Budget
The capital expenditures budget projects expenditures related to the acquisition or construction of capital (fixed) assets. Since acquisition of capital assets often requires an extended planning horizon, the capital expenditures budget often spans multiple fiscal periods.
Contribution Margin per Unit Approach to Calculate Break-Even in Units
The contribution margin represents the portion of revenues which are available to cover fixed costs. Sales Revenue - Variable Costs = Contribution Margin Contribution margin can be expressed on a per unit basis: Sales Price Per Unit - VC Per unit = Contribution Margin Per Unit Since the contribution margin per unit represents the amount that the sale of an individual unit contributes to covering fixed costs, it provides an easy way to calculate the number of units necessary to break even. Break even in units = Total Fixed Costs/Contribution margin per unit Break even in dollars
External failure cost.
The cost incurred for products that do not meet requirements of the customer and have reached the customer. Examples of external failure costs include: 1. Cost of field servicing and handling complaints 2. Warranty repairs and replacements 3. Product recalls 4. Liability arising from defective products 5. Returns and allowances arising from quality problems 6. Lost sales arising from reputation for poor quality
Prevention cost
The cost of prevention is the cost of any quality activity designed to help do the job right the first time. Examples of prevention cost include: 1. Quality engineering 2. Quality training 3. Quality circles 4. Statistical process control activities 5. Supervision of prevention activities 6. Quality data gathering, analysis, and reporting 7. Quality improvement projects 8. Technical support provided to suppliers 9. Audits of the effectiveness of the quality system
Appraisal cost
The cost of quality control including testing and inspection. It involves any activity designed to appraise, test, or check for defective products. Examples of appraisal costs include: 1. Testing and inspection of incoming materials 2. Testing and inspection of in-process goods 3. Final product testing and inspection 4. Supplies used in testing and inspection 5. Supervision of testing and inspection activities 6. Depreciation of test equipment 7. Maintenance of test equipment 8. Plant utilities in the inspection area 9. Field testing and appraisal at customer site
Internal failure cost
The costs incurred when substandard products are produced but discovered before shipment to the customer. Examples of internal failure costs include: 1. Scrap 2. Spoilage 3. Rework 4. Rework labor and overhead 5. Reinspection of reworked products 6. Retesting of reworked products 7. Downtime caused by quality problems 8. Disposal of defective products 9. Analysis of the cause of defects in production 10. Reentering data because of keying errors 11. Debugging software errors
What is a unique feature of the service blueprint?
The distinction between high customer contact & the processes the customer does not see, indicated by a "line of visibility"
General Transfer Pricing Rule
The following transfer pricing rule helps to ensure goal congruence among department and divisional managers: Transfer Price per Unit = Additional Outlay Cost per Unit + Opportunity Cost per Unit
Facilitating goods
The material purchased by the buyer or the items provided to the customer
supporting facility
The physical resources that must be in place before a service can be offered
In a department 25 machines are kept running by three operators who respond to randomly occurring equipment problems. An analyst who wanted to know how much production was being lost by machines waiting for service could use queuing theory analysis to find out.
True
In a department 25 machines are kept running by three operators who respond to randomly occurring equipment problems. When an operator is not immediately available for servicing a machine having a problem, the amount of production being lost by machines waiting for service increases. An analyst can use queuing theory analysis to determine whether to pay overtime to get an operator from a different shift or not.
True
In a department, 25 machines are kept running by three operators who respond to randomly occurring equipment problems. An analyst wanting to know whether to add a fourth operator or downsize to two operators would be helped by using queuing theory analysis.
True
In a waiting line situation, multiple lines occur only when there are multiple servers.
True
Longest waiting time in line is a queue discipline discussed in the textbook.
True
Regardless of the computer language chosen for a simulation model, too much data from a simulation can be dysfunctional to problem solving.
True
Special-purpose simulation software is specially built to run specific applications and may have provisions in manufacturing models to allow for specifying the number of workcenters, their descriptions, arrival rates, and even batch sizes.
True
The Poisson probability distribution is used in waiting line management when one is interested in the number of arrivals to a queue during some fixed time period.
True
The central problem in virtually every waiting line situation is a decision balancing the costs of adding services with the costs of waiting. T or F?
True
The demand on a hospital's emergency medical services is considered an uncontrollable arrival pattern of the calling population.
True
There are different queuing models to fit different queuing situations.
True
Overhead Variances
Two types of OH: Fixed and Variable - separate variances must be calculated - both variable and fixed overhead are applied to production based on a single predetermined overhead application rate: > Overhead Application Rate = (Budgeted Variable Overhead + Budgeted Fixed Overhead) / (Budgeted Units of the Allocation Base)
Cost-Based Pricing
Under cost-based pricing, the transfer cost is determined by the selling division's production costs. 3 variations: Variable cost pricing, full cost (absorption) pricing, cost-plus pricing
control limits (x and r chart)
Usually use 3 (99.7% of samples expected to fall within control limits)
Variance Calculations
Variance analysis analyzes the difference between standard costs and actual costs. When standard costs are used to value inventories, the variance must be written off: Non-significant variances—Write off to CGS. Significant variances—Allocate to ending work-in-process, finished goods, and cost of goods sold. Variance analysis divides the difference between actual costs and standard costs into two parts: Differences due to the cost of the resource (price per pound, labor rate per hour, etc.) Differences due to the quantity used (gallons, pounds, feet, labor hours, etc.) https://app.efficientlearning.com/pv5/v8/5/content/cpa/html/image_n/dir.cst.var.anls.ST.BEC2017-f003.jpg
Targeted Profit
When a targeted profit beyond break-even is specified, simply add this amount to the fixed cost in the numerator. You can think about the contribution margin on the denominator as having to cover all items in the numerator. Sales in Units = (Fixed Costs + Targeted Profit) / Contribution Margin per Unit
composite contribution margin
When multiple products are involved and break even point needs to be determined. Use a sales mix weighted proportion to calculate the Composite CM for example if Product A sells twice as much as Product B then multiply the CM of product A by 2 and multiply the CM of product B by 1, then add them together to get the composite CM. Total fixed/composite CM = composite units for break even multiply the composite units by the individual products weighted sales mix to get the break even quantities for each product.
transfer price
When one division of a manufacturing organization supplies components or materials to another division,transfer price is charged by the selling division to the buying division 1. Market price: The price the purchasing unit would have to pay on the open market. Market price is the "theoretically correct" transfer price. 2. Cost-based price: One of several variations on the selling units' cost of production: variable cost, full cost, cost "plus" (a percentage or a fixed amount). 3. Negotiated price: A price that is mutually agreeable to both the selling and purchasing unit.
Selling unit is operating at full capacity
When the selling unit is both producing at full capacity and selling all that it produces, the opportunity cost per unit is equal to the revenue given up if the unit is sold internally less the additional outlay incurred in the production and sale of the unit Opportunity Cost per Unit = Selling Price per Unit - Additional Outlay Cost per Unit
Explain Rocket Launch
When there is a countdown, it goes 10, 9, 8, 7...
Different strategies call for different scorecards
Within each of the four classifications, the organization identifies its: Strategic goals Critical success factors Tactics Performance measures Effective scorecards are designed so that the tactics that promote achievement of strategic goals in one area support achievement of strategic goals in other areas.
Costs and graphs
Y= a + bx where Y = total cost a = fixed cost b = cost per unit x = number of units
The DMAIC cycle of Six Sigma is similar to which of the following quality management topics?
a.Continuous improvement (correct) b.Servqual c.ISO 9000 d.External benchmarking e.None of the above
Which of the following analytical tools depict trends in quality data over time?
a.Flowcharts b.Run charts (correct) c.Pareto charts d.Checksheets e.Cause and effect diagrams
Approximately what percentage of every sales dollar is allocated to the "cost of quality"?
a.Less than 5% b.About 10% c.Between 15 and 20 % (correct) d.More than 30% e.None of the above
Customer Arrival "populations" in a queuing system can be characterized by which of the following?
a.Poisson b.Finite (correct) c.Patient d.FCFS e.None of the above
example of a "queue discipline" in a queuing system is which of the following?
a.Single channel, multiphase b.Single channel, single phase c.Multichannel, single phase d.Multichannel, multiphase e.None of the above (correct - These are the rules for determining the order of service to customers, which include FCFS, reservation first, highest-profit customer first, etc.)
Withdrawing funds from an automated teller machine is an example in a queuing system of which of the following "line structures"?
a.Single channel, multiphase b.Single channel, single phase (correct) c.Multichannel, single phase d.Multichannel, multiphase e.None of the above
Which of the following are functions of a quality control department?
a.Testing product designs for reliability b.Gathering product performance data c.Planning and budgeting the QC program d.All of the above (correct) e.None of the above
Acceptance sampling result options
accept, reject, or retest
How are services classified?
according to the customers they service and the service they provide those customers
Features
added touches, bells and whistles, secondary characteristics
What is a pure platform business?
aggregator that brings together players via the internet
Lambda must...
always be less than or equal to mu
4 types of Costs of quality
appraisal costs, prevention costs, internal failure costs, external failure costsappr
demand flow or demand flow technology (DFT)
approach is to link process flows and manage those flows based on customer demand.
Increases in the cost of prevention and the cost of appraisal
are usually accompanied by decreases in the cost of failure and increases in the quality of conformance. Continuing with the power cord example, if the manufacturer increased the amount of testing completed before the product was shipped, more defective products would be discovered. this would increase the cost of internal failure but decrease the cost of external failure, and as a result the overall cost of failure decreases.
What does Poka-yoke mean in japanese?
avoid mistakes
Checksheets
basic forms that help standardize data collection
2 types of arrival sizes
batch or single
How does a platform business create value?
by managing the transactions between consumer and provider
How are variables usually measured?
by mean and standard deviation (X bar and r chart)
Six Sigma Analytical Tools (7)
flowchart, run chart, pareto chart, check sheet, cause and effect diagram, opportunity flow diagram, process control chart
larger sampling size =
greater sensitivity to detect finer variations
Actual overhead
he amount actually paid for overhead expenses. These costs are initially charged to the specific expense account (i.e., supplies inventory, utilities, maintenance, supervision, etc.) and to the Factory Overhead Control account. Dr. Factory overhead Control Utilities Expense Cr. AP
Overall focus of six sigma methodology
understand and achieve what the customer wants
Process control charts
used to assure that processes are in statistical control
Opportunity flow diagram
used to separate value-added from non-value-added
Fail-safing
using the service blueprint to identify opportunities for failure and then establishing procedures to prevent mistakes from becoming defects
When is 100% sampling justified?
when the cost of loss from not inspecting is greater than the cost of inspection
The operating budget
within the operating budget are: a. Sales budget b. Production budget c. Production cost budgets (direct materials, labor, and overhead budgets) d. Selling and administrative expense budget
ISO directs you to...
"document what you do and then do as you documented"
Accept or Reject a Special Order
"special" orders: one-time opportunities that are not part of the organization's ongoing business. - For these decisions, the only relevant costs are the costs directly attributable to the special order and, if the company is operating at capacity, the opportunity costs associated with production that must be canceled in order to complete the special order. -Considering a Special Order when There Is Excess Capacity. If the special order can be completed using existing capacity, only sales revenues and the variable costs of producing the order need be considered.
Formula for DPMO
(# of defects / # of opportunities for error per unit x # of units) x 1,000,000
Types of Standards
- Ideal/theoretical standards—Ideal standards presume perfect efficiency and 100% capacity. Not useful for control purposes as they are not practically attainable - Currently attainable standards—Currently attainable standards are based on higher than average levels of efficiency, but are clearly achievable. Typically used for employee motivation, product costing, and budgeting - Standards are not only based on historical performance as this may incorporate past periods' inefficiencies. - Standards may be used by service organizations as well as manufacturing organizations. They may be used in both process costing and job-order costing environments.
Methods for Dealing with Risk
- Modify the structure of the income statement as needed to determine the most appropriate operating leverage approach to mitigating/eliminating uncertainty. - Provide contingency planning for disaster recovery and business continuity. - Use hedging and diversification to overcome defined levels of excessive exposure. - Use insurance contracts to provide for risk mitigation or elimination of risk in some cases. - Evaluate uncertainty involved with estimating future costs and revenues. Cost and revenue planning and control can also be included as an important part of a comprehensive risk management plan.
The Master Budget is Composed of Several Coordinated Parts
- Operating Budget - Financial Budget - Capital Expenditures Budget
Process Management
- Process management involves activity analysis to achieve an understanding of the work that takes place in an organization. - Processes can be defined as a series of activities conducted to accomplish a defined objective. - The key objectives of process management are to: - - Increase manager understanding of the cause-and-effect relationships involved between processes and the resources they consume - - Promote the elimination of waste to help achieve managerial objectives - Process management highlights interdependencies across functional business areas by focusing on the processes - Process management also supports the view that process knowledge and the continuous improvement of processes are important -
disadvantages of acceptance sampling
- Risks of accepting "bad" lots and rejecting "good" lots - Added planning and documentation - Sample provides less information than 100 percent inspection
Quality Tools and Methods
- Total Quality Control (TQC)—The application of quality principles to all company activities. Also known as total quality management (TQM). - Continuous Improvement and Kaizen Continuous Improvement (CI) seeks continual improvement of machinery, materials, labor, and production methods, through various means including suggestions and ideas from employees and customers.
Creating the Balanced Scorecard
- identify strategic objectives in each of the four areas - SWOT analysis to identify critical success factors - develop a course of action designed to achieve goals - develop performance measures for each action item
Activity-based costing (ABC)
- is a method of assigning overhead (indirect) costs to products. - It is an alternative to the traditional, volume-based approach of accumulating large amounts of overhead in a single pool and assigning the costs across all products based on the labor dollars, labor hours, or some other generic allocation base. - The volume-based approach, while simple, does not accurately reflect the true relationship between the products produced and the costs incurred as it systematically over-assigns costs to some products and under-assigns costs to others.
balanced scorecard (BSC)
- translates an organization's mission and strategy into a comprehensive set of performance metrics. - The BSC highlights both nonfinancial and financial metrics that an organization can use to measure strategic progress.
quality addresses two perspectives in TQM:
-Failure to execute the product design as specified. -Failure to design the product appropriately; quality of design is defined as meeting or exceeding the needs and wants of customers.
For an infinite queuing situation, if the arrival rate for loading trucks is 5 trucks per hour, what is the mean time between arrivals? A. 5 hours B. 2.5 hours C. 0.2 hour D. 0.1 hour E. None of these
0.2 hour
Cost of quality consists of four components
1) prevention cost, (2) appraisal cost, (3) internal failure cost, and (4) external failure cost. Two categories of quality control costs: Conformance and non conformance costs Conformance: Prevention and Appraisal Non conformance: Internal and external costs P A I E
4 factors of waiting lines
1. # of arrivals over the hours that the service sytem is open, 2. customers demand varying amounts of service, often exceeding normal capacity, 3. we can affect service time by using faster or slower servers, 4. we can control arrivals with short lines, specific hours for specific customers, or specials
3 degrees of customer/service contact
1. Buffered core - physically separated from customer, 2. Permeable system - penetrable by customer via phone or face-to-face contact, 3. Reactive system - both penetrable & reactive to the customer's requirements
Budgeting Process - Financial
1. Cash Budget - The cash budget projects cash receipts, cash disbursements, and ending cash balance by analyzing: Anticipated operating receipts, Anticipated operating expenditures, Anticipated capital expenditures. 2. Financing and investing activities—Based on minimum cash balance requirements specified by management, the amount of cash that must be borrowed or may be invested is determined. 3. Budgeted financial statements (pro forma income statement and pro forma balance sheet)— use information from the operating budgets, the cash budget, and the capital expenditures budget to project the results of operation and financial position at the end of the period.
different types of production processes
1. Craft—A small number of a high variety of unique (i.e., customized or one-of-a-kind) products usually with simple tools or technology and highly skilled labor. 2. Mass—Making a large number of standardized or identical products usually with dedicated (i.e., single-purpose), often automated or otherwise sophisticated machinery, and unskilled labor. 3. Lean—Making small batches of a high variety of unique products usually with automated or otherwise sophisticated machinery and highly skilled labor (usually cross-trained).
3 Points: Nature of Services & Design
1. Customer is focal point of all decisions/actions, 2. Organization exists to serve the customer, 3. Services are intangible & cannot be inventoried or patented 4. Are time-dependent
Six Sigma involves five steps:
1. Define customers and their requirements. 2. Measure defects and other metrics. 3. Analyze to determine root cause of failures and the sources of variation. 4. Improve through experimentation. 5. Control results using TQM statistical process control tools (e.g., control charts).
Budgeting Process - Operating
1. Developing a Sales Forecast based on both estimates of sales in dollars and in units. 2. Forming a sales budget with the planned sales in dollars and in units on a monthly/Quarterly basis. 3. Forming a product budget to project the production quantities needed to support sales and provide for the specified quantity of ending inventory. 4. Product costs budget - includes a direct material budget, direct labor budget, and overhead budget. This is based on the information by the production budget. 5. The selling and administrative expense budget lists the budget expenses for areas outside of manufacturing.
Common performance measures for each category
1. Financial—Gross profit margin, sales growth, profitability per job or product, stock price, 2. Customer—Market share, product returns as a percentage of sales, number of new customers 3. Internal Business Processes—Percentage of production downtime, delivery cycle time, manufacturing cycle time/throughput 4. Learning, Innovation, and Growth—Percentage of employees with professional certifications, hours of training per employee, https://app.efficientlearning.com/pv5/v8/5/content/cpa/html/image_n/bal.sccrd.ST.BEC2017-f001.jpg
Step 2—Determine the cost per equivalent unit.
1. First determine total costs to account for Beginning WIP Costs + Current Period Costs + Transfer in Costs = Total Costs 2. Which type of cost flow asssumption: FIFA or Weighted Average - WA: beginning WIP inventory costs are added to the current period costs before dividing by EU figure - FIFO: the costs associated with prior period work on beginning WIP inventory are transferred to FG in their entirety. CP unit costs are divided by the EU
Fixed vs. Variable Costs
1. Fixed costs—Remain constant in total regardless of production volume. Because of this, fixed costsper unit vary—increasing when production decreases and decreasing when production increases. 2. Variable costs—Vary in total, in direct proportion to changes in production volume. Variable costs per unit remain constant regardless of production volume.
Lean Principles
1. Identify all steps in the value stream for each product family, eliminating steps that do not create value. 2. Make the value-creating steps occur in tight sequence so the product will flow smoothly toward the customer. 3. As flow is introduced, let customers pull value from the next upstream activity. 4. As value is specified, value streams are identified, wasted steps are removed, and flow and pull are introduced: begin the process again and continue it until a state of perfection is reached in which perfect value is created with no waste.
Mass vs Lean Production
1. Inflexible versus flexible equipment—Mass production typically uses dedicated or single-purpose equipment. Lean production uses flexible multi-use equipment. 2. High versus low setup time—Equipment in mass production typically requires a high setup time. 3. Low versus high labor skill—Mass production typically requires a low labor skill level because of the presence of labor specialization (workers do one task only). This avoids costly training and the need for workers to thoroughly understand the production process. Lean production requires a flexible, skilled work force.
Benchmarks
1. Internal benchmarking. - involves benchmarking within the firm. 2. Generic benchmarking.- involves benchmarking to the best practices regardless of the industry. 3. Competitor benchmarking.- involves benchmarking against direct competitors. 4. Functional benchmarking. - involves benchmarking within the same broad industry.
Other Manufacturing Costs
1. Marginal cost or revenue—Additional cost or revenue resulting from one more unit of output 2. Accounting cost—Explicit costs that are "accounted for," typically as evidenced by an entry in a fundamental book or accounting record (e.g., the general ledger) 3. Average fixed cost—Decreases as volume increases (subject to the relevant range). 4. Average variable cost—Increases as volume increases (subject to the relevant range). 5. Committed cost—Cannot be avoided in the current accounting time period (the opposite of discretionary costs). 6. Discretionary cost—May or may not be included in the budget and can be considered avoidable as determined by a decision maker with the authority to do so (opposite of committed cost).
Outsourcing, Shared Services, and Off-Shore Operations
1. Outsourcing—This can be defined as contracting a business process to an external provider. Major reasons include lower costs or higher quality. Biggest risk is risk to quality. 2. Shared Service—One part of an organization provides an essential business process that previously had been provided by multiple parts of that same organization. 3. Offshore Operations—A process is moved to a different country. The movement can be to either an internal or external provider.
This division of costs can be seen in the format of the income statement:
1. Product costs: Net Sales - COGS = Gross Profit 2. Period Costs: Net Sales - Selling and Admin Expenses = Net Profit (Loss)
3 contrasting service designs & examples
1. Production line approach - treated much like manufacturing (McDonald's), 2. Self-service approach - customer takes greater role in production of service (ATM), 3. Personal attention approach (Ritz-Carlton)
commonly used methods of relaxing the constraint (eliminating the bottleneck):
1. Re-engineer the production process to make it more efficient. 2. Re-engineer the product to make it simpler to produce. 3. Eliminate nonvalue-added activities at the bottleneck operation. 4. Work overtime at the bottleneck operation. 5. Outsource some or all production at the bottleneck operation.
5 useful tips for managing queues
1. Segment the customers, 2. Train servers to be friendly, 3. Inform customers of what to expect, 4. Divert customer's attention while waiting, 5. encourage customers to come during slack periods
Fixed selling and administrative costs
1. Selling costs—Fixed costs associated with selling the good or service (e.g., sales representatives' salaries, depreciation on sales-related equipment, etc.) 2. Administrative costs—Fixed costs associated with the administrative functions of an organization (e.g., officers' salaries; depreciation, property taxes, and insurance on office building, and etc.)
Variable selling and administrative costs
1. Selling costs—Variable costs associated with selling the good or service (e.g., freight out, sales commissions, etc.) 2. Administrative costs—Fixed costs associated with the administrative functions of an organization (e.g., office supplies, office utilities, advertising, etc.) variable selling and administrative costs are not product costs and are not considered part of Cost of Goods Sold. Instead, they are always recognized as a period cost and are completely expensed each period. Fixed Manufacturing Costs are treated as period costs. They are included in the Contribution Margin Calculation
5 features of a service package & examples
1. Supporting facility (golf course, airline, auto repair shop), 2. Facilitating goods (golf clubs, drinks, auto parts), 3. Information (tee-off times, seat preferences, part availability), 4. Explicit services (time of an ambulance, AC in hotel room, smooth-running car after tune-up), 5. Implicit services (status of Ivy league degree, privacy of loan office, worry-free auto repair)
Absorption vs direct costing
1. The absorption model assigns all manufacturing costs to products. 2. The direct model assigns only variable manufacturing costs to products. 3. , the inventory valuation under absorption costing will always be greater than the inventory valuation under direct costing. 4. From an external reporting point of view, direct costing understates assets on the balance sheet. 5. When the number of units sold equals the number of units produced, absorption costing and direct costing produce identical incomes. 6. Calculating the difference: Ending Inventory Units x Fixed Cost Per Unit - Beginning Inventory Units x Fixed Cost per Unit AKA income reconciliation rule"
Value-Added Costs and Nonvalue-Added Costs
1. Value-added costs - Product costs that enhance the value of the product in the eyes of the consumer. Most direct costs are value-added costs. 2. Nonvalue-added costs—Costs that could be eliminated without deterioration of product quality, performance, or perceived value to the consumer. Many nonvalue-added costs are essential to production and cannot be completely eliminated.
3 service applications of poka-yokes
1. Warning methods (steps that lead to a mistake trigger a warning, 2. Physical or Visual contact methods (parts can only fit together in right way), 3. Three Ts
Lean is a lot like Just In Time
1. Workers are "empowered." 2. The organization seeks a close relationship with suppliers. 3. The organization maintains a close relationship with customers (i.e., extensive direct contact and information sharing, working with customers to give them what they want—especially in providing greater variety). 4. Product design engineers work "concurrently" with process design engineers, service engineers, production line workers, and others to ensure that products are easy to make, assemble, ship, and repair.
3 Customer arrival characteristics
1. arrival patterns (steady or seasonal), 2. size of arrival rates (individuals or groups), 3. degree of patience (will they wait?)
2 Operational goals of TQM
1. careful design of the product or service, 2. assurance that the organization's systems can consistently produce the design
2 types of service time distribution
1. constant - service is automated, 2. variable - service provided by humans, can be customized, described by exponential distribution
7 principles of quality management (ISO 9000)
1. customer focus, 2. leadership, 3. involvement of people, 4. process approach, 5. continual improvement, 6. factual approach to decision-making, 7. mutually beneficial supplier relationships
Examples of web platform businesses & brick/mortar
1. eBay, YouTube, AirBNB, Facebook, Uber; 2. shopping mall
3 customer arrival rates
1. exponential (random), 2. Poisson (probability of arrivals in a time period), 3. Constant
2 steps of external benchmarking
1. identify processes needing improvement, 2. analyze data
5 queuing system factors
1. line length, 2. number of lines, 3. queue discipline, 4. service time distribution, 5. line structure
2 Exit Fates of customers
1. low probability of reservice (appendectomy), 2. high probability of reservice (rollercoaster that keeps breaking down)
6 common service system designs
1. mail contact, 2. internet & onsite technology, 3. phone contact, 4. face-to-face tight specs, 5. face-to-face loose specs, 6. face-to-face total customization
Effects of Adoption of Activity-Based Costing
1. organizations that adopt activity-based costing tend to have: a. More precise measures of cost b. More cost pools c. More allocation bases (e.g., multiple causes for costs to occur) 2. Activity-based costing can be used: a. With job order and process costing systems b. With standard costing and variance analysis c. For service businesses as well as manufacturers 3. In general, compared to traditional, volume-based costing, activity- based costing tends to shift costs away from high volume, simple products to lower volume, complex products.
5 line structures
1. single channel, single phase (1-chair barbershop), 2. single channel, multi-phase (car wash), 3. multichannel, single phase (car wash), 4. multichannel, multi-phase (hospital admissions), 5. mixed (factory floor, car manufacturing, iphones)
3 reasons to use computer simulation over waiting line equations
1. some waiting line probs are complex and hard to solve, 2. equations assume that waiting lines are independent, 3. some problems have conditions that do not meet requirements of the equations
3 major components of queuing system
1. source population & the way customers arrive at the system, 2. servicing system, 3. condition of the customers exiting the system (back to source pop or not?)
Estimated cost of quality & well-run quality cost
15-20% of every $1 vs goal of less than 2.5%
What level of Cpk is 6 Sigma quality?
2.0
number of samples (x and r charts)
25 samples to set up chart, then other samples are compared to chart
Summary of overhead application
3 steps 1. the beginning of the year, we calculate the predetermined overhead allocation rate (POR). 2. During the year, we periodically allocate overhead by multiplying the overhead allocation rate (POR) by the actual units of the allocation base. 3. At the end of the year we dispose of over/underapplied overhead by taking the difference between actual overhead and applied overhead to Cost of Goods Sold.
Arrival characteristics in a queuing problem analysis include the length of the queue.
False
What percent of the GDP is made up by services?
80% or more
What percentage of problems does Deming believe are due to common causes (variation)?
94%
Projected Profit
= CM(Target Total Sales) - Fixed Costs
Flexible Budget
A flexible budget is one that shows budgeted costs for different activity levels. unlike the master budget, a flexible budget adjusts revenues and some costs when actual sales volume is different from planned sales volume. This makes it easier to analyze actual performance because the actual revenues and costs can be compared to the expected revenues and costs at the actual level of sales activity. Differences between the flexible budget and the master budget are known as sales activity variances or volume variances.
Six Sigma Quality
A philosophy and set of methods companies use to eliminate defects in their products and processes. Seeks to reduce variation in the processes that lead to defects.
relevant range
A relevant range is a range of production volumes where: 1. The range of activity for which the assumptions of cost behavior reasonably hold true; and 2. The range of activity over which the company plans to operate. 3. If (1) is true but (2) is not, then the analysis will not be relevant to the company. If (2) is true but (1) is not, then the assumptions of the model are not satisfied making the analysis invalid. All cost behavior patterns are valid only within a relevant range. We will discuss the concept of a relevant range in more detail in conjunction with cost-volume-profit analysis.
14. Customer arrival "rates" in a queuing system can be characterized by which of the following? A) Constant. B) Infinite. C) Finite. D) All of the above. E) None of the above.
A) Constant.
22. Which of the following statement is not true? A) Studies have shown that providing entertainment to customers waiting in line may increase customer dissatisfaction. B) A direct relationship exists between the cost of providing a service and the cost of making a customer wait. C) Waiting lines often form because of variability in both arrival times and in service patterns. D) Reneging is when the customer arrives, views the situation, joins the waiting line, and then after sometime, departs.
A) Studies have shown that providing entertainment to customers waiting in line may increase customer dissatisfaction.
6. Suppose we have a queuing system. Which of the following would, everything else being equal, definitely cause the average number waiting in line to increase? A) a reduction in capacity. B) an increase in standardization. C) a reduction in the allowable size of the queue. D) a change in the queue discipline.
A) a reduction in capacity
Suppose we have a queuing system. Which of the following would, everything else being equal, definitely cause the average number waiting in line to increase? A) a reduction in capacity. B) an increase in standardization. C) a reduction in the allowable size of the queue. D) a change in the queue discipline.
A) a reduction in capacity.
18. The number of _____________ represents the number of parallel servers. A) channels B) phases C) queues D) None of the above.
A) channels
5. Which of the following, everything else being equal, magnifies the gap between perceived waiting time and actual waiting time? A) customer anxiety. B) customer demand. C) server utilization. D) the number of servers.
A) customer anxiety.
Which of the following, everything else being equal, magnifies the gap between perceived waiting time and actual waiting time? A) customer anxiety. B) customer demand. C) server utilization. D) the number of servers.
A) customer anxiety.
9. If a system that has a variable service time of 10 minutes is converted to a constant service time of 10 minutes, the effect on the average number waiting in line will be to: A) decrease it. B) increase it. C) no effect. D) impossible to say.
A) decrease it.
If a system that has a variable service time of 10 minutes is converted to a constant service time of 10 minutes, the effect on the average number waiting in line will be to: A) decrease it. B) increase it. C) no effect. D) impossible to say.
A) decrease it.
1. Why do waiting lines form even if average capacity exceeds average demand? A) temporary fluctuations in demand relative to capacity. B) long-run imbalances between demand and capacity. C) short-run fluctuations in the size of the calling population. D) lack of variation in the size of the queuing area.
A) temporary fluctuations in demand relative to capacity.
Why do waiting lines form even if average capacity exceeds average demand? A) temporary fluctuations in demand relative to capacity. B) long-run imbalances between demand and capacity. C) short-run fluctuations in the size of the calling population. D) lack of variation in the size of the queuing area.
A) temporary fluctuations in demand relative to capacity.
Being user-friendly and easy to understand typically means that the simulation produces less accurate results.
False
Which of the following is an example of general-purpose simulation software? A. PC-MODEL B. MAP/1 C. SIMFACTORY D. Canella IV E. OPUS/2.3
A: PC-Model
A roller coaster ride in an amusement park employs which type of queuing system line structure? A. Single channel, single phase B. Single channel, multiphase C. Multichannel, single phase D. Multichannel, multiphase E. None of these
A: Single channel, single phase
Getting an autograph from a famous person might involve standing in which type of queuing line structure? A. Single channel, single phase B. Single channel, multiphase C. Multichannel, single phase D. Multichannel, multiphase E. None of these
A: Single channel, single phase
Machine breakdown and repair in a 12-machine factory having one repair mechanic would develop which type of queuing system line structure concerning machine breakdowns? A. Single channel, single phase B. Single channel, multiphase C. Multichannel, single phase D. Multichannel, multiphase E. None of these
A: Single channel, single phase
Which of the following is a suggestion for managing queues presented in the textbook? A. Train your servers to be friendly. B. Tell customers that the line should encourage them to come during slack periods. C. Give each customer a number. D. Periodically close the service channel to temporarily disperse the line. E. Use humor to defuse a potentially irritating situation.
A: Train your servers to be friendly
ABC vs Traditional costing
ABC disaggregates overhead costs into specific activities or drivers, computes overhead rates for each driver, and then allocates overhead to products based on their consumption or the use of the driver. Thus, ABC first allocates overhead to activities and then to products, rather than to departments and then to products, as is the case with traditional systems. In a traditional Costing system: Costs are accumulated by department or function for the purposes of product costing. ABC systems and JIT purchasing systems are frequently used together. One objective is to minimize inventory holdings. The level of inventory held has no bearing on product quality or the satisfaction of the customer. By reducing inventories, less material must be stored, reducing all the attendant activities and costs related to material storage. Thus, the total cost is reduced without affecting the customer and sales.
Four factors of acceptance sampling
AQL, LTPD, a, B
*Cost Accounting*
Absorption and Direct Costing
Absorption and Direct Costing
Absorption and direct costing are two methods of assigning manufacturing costs to inventory. 1. Absorption Costing: Assigns all three factors of production (direct material, direct labor, and both fixed and variable manufacturing overhead) to inventory. 2. Direct Costing (also known as variable costing): Assigns only variable manufacturing costs (direct material, direct labor, but only variable manufacturing overhead) to inventory. 3. Absorption costing is required for external reporting purposes. This is currently true for both external financial reporting and reporting to the IRS. 4.Direct costing is frequently used for internal decision-making but cannot be used for external reporting.
AQL
Acceptable Quality Level - maximum acceptable percentage of defectives defined by a producer
Quality Gurus' general message
Achieving quality requires quality leadership from sr. mgmt, a customer focus, total involvement of workforce, and continuous improvement (Deming)
*Process Management*
Activity-Based Costing and Process Management
Activity-Based Costing Characteristics
Activity-based costing begins by identifying activities. Activities form the building blocks of an ABC system because activities consume resources. Activities are commonly grouped into one of four categories: - a. Unit-level activities—Activities that must be performed for every product unit; for example, using a machine to polish a silver tray or boxing up an item for delivery. b. Batch-level activities—Activities that must be performed for each batch of products produced; examples include setting up the production equipment for the batch and running random quality inspections of items in the batch. c. Product-sustaining-level activities—Activities that are necessary to support the product line as a whole such as advertising and engineering activities. d. Facility-(general-operations) level activities—Activities that are necessary to support the plant that produces the products; for example, plant manager salaries, property taxes, and insurance.
Full-cost (absorption) pricing
An allocated portion of the fixed costs of the selling division is added to the product's variable costs to determine the transfer price. it is problematic for the organization as a whole. Why? Because the fixed costs allocated to the product by the selling division become variable costs to the purchasing division When fixed costs are treated like variable costs, any analysis that uses these costs to value earning opportunities will tend to understate profitability.
Best customer last is a queue discipline discussed in the textbook.
False
12. The central problem for virtually all queuing problems is which of the following? A) Balancing labor costs and equipment costs. B) Balancing costs of providing service with the costs of waiting. C) Minimizing all service costs in the use of equipment. D) All of the above. E) None of the above
B) Balancing costs of providing service with the costs of waiting
13. Customer arrival "populations" in a queuing system can be characterized by which of the following? A) Poisson distribution. B) Finite. C) Patient. D) Negative exponential distribution. E) None of the above.
B) Finite
16. The _________ distribution is most often associated with the arrival rate. A) normal B) Poisson C) Beta D) negative exponential E) None of the above.
B) Poisson
15. Withdrawing funds from an automated teller machine is an example in a queuing system of which of the following "system configurations"? A) Single channel, multi phase. B) Single channel, single phase. C) Multi channel, single phase. D) Multi channel, multi phase. E) None of the above.
B) Single channel, single phase.
11. A customer who arrives, looks, and then leaves is: A) patient. B) balking. C) reneging. D) jockeying. E) low utilization of the system.
B) balking.
A customer who arrives, looks, and then leaves is: A) patient. B) balking. C) reneging. D) jockeying. E) low utilization of the system.
B) balking.
The central problem for virtually all queuing problems is which of the following? A)Balancing labor costs and equipment costs. B)Balancing costs of providing service with the costs of waiting. C)Minimizing all service costs in the use of equipment. D)All of the above. E)None of the above.
B)Balancing costs of providing service with the costs of waiting.
In modeling a simulation, random numbers from 00 to 99 are assigned with the intervals determined from frequency distributions for each behavior occurrence. Assume there are two behaviors, A and B, out of 100 tallies. On behavior A you record 45 tallies, and on behavior B you record 55 tallies. Which of the following is a correct random-number interval for behavior A? A. 00 to 45 B. 00 to 44 C. 56 to 99 D. 55 to 100 E. 45 to 100
B: 00 to 44
Which of the following is not a queue discipline discussed in the textbook? A. First come, first served B. Last in, first out C. Limited needs D. Shortest processing time E. Best customer first
B: Last in, first out
Which of the following is an example of general-purpose simulation software? A. Link Trainer Programs B. SIMSCRIPT II.5 C. SIM-Central D. C++ E. Visual Basic
B: Simscript 11.5
In a college registration process, several department heads have to approve an individual student's semester course load. What is the queuing system line structure? A. Single channel, single phase B. Single channel, multiphase C. Multichannel, single phase D. Multichannel, multiphase E. None of these
B: Single channel, multiphase
Which of the following is an example of a finite population in a queuing system? A. People waiting to place their order at a fast-food restaurant B. The departmental faculty in line at the copier C. People waiting in line at an ATM D. Patients seeking help in a hospital emergency room E. Taxpayers calling for assistance from the IRS
B: The departmental faculty in line at the copier
Assume the service rate for a queue in a truck-loading operation is 2 trucks per hour. Using the infinite queuing notion for the models presented in the textbook, which of the following is the average service time? A. 2 hours B. 1 hour C. 0.5 hour D. 0.25 hour E. None of these
C: 0.5 hour
In modeling a simulation, random numbers from 00 to 99 are assigned with the intervals determined from frequency distributions for each behavior occurrence. Assume there are two behaviors, X and Y, out of 50 tallies. On behavior X you record 20 tallies, and on behavior Y you record 30 tallies. Which of the following is a correct random-number interval for behavior X? A. 00 to 19 B. 01 to 20 C. 00 to 39 D. 41 to 61 E. 45 to 100
C: 00 to 39
Which of the following is not a suggestion for managing queues presented in the textbook? A. Train your servers to be friendly. B. Segment the customers. C. Determine an acceptable waiting time for your customers. D. Inform your customers of what to expect. E. Encourage customers to come during slack periods.
C: Determine an acceptable waiting time for your customers
Buying a ticket for a college football game where there are multiple windows at which to buy the ticket features which type of queuing system line structure? A. Single channel, single phase B. Single channel, multiphase C. Multichannel, single phase D. Multichannel, multiphase E. None of these
C: Multichannel, single phase
Buying food at a large food store with multiple checkout counters features which type of queuing system line structure? A. Single channel, single phase B. Single channel, multiphase C. Multichannel, single phase D. Multichannel, multiphase E. None of these
C: Multichannel, single phase
Machine breakdown and repair in a 12-machine factory having three repair mechanics would develop which type of queuing system line structure concerning machine breakdowns? A. Single channel, single phase B. Single channel, multiphase C. Multichannel, single phase D. Multichannel, multiphase E. None of these
C: Multichannel, single phase
Standing in line to buy a ticket for a movie where there are multiple windows at which to buy tickets is which type of queuing system line structure? A. Single channel, single phase B. Single channel, multiphase C. Multichannel, single phase D. Multichannel, multiphase E. None of these
C: Multichannel, single phase
Which of the following is a suggestion for managing queues that is mentioned in the textbook? A. Put up a serpentine lane to keep people from jumping ahead in line. B. Use humor to defuse a potentially irritating situation. C. Segment the customers. D. Assure customers that the wait is fair, and inform them of the queue discipline. E. Tell people in the queue that each will be served as soon as possible.
C: Segment the customers
Which of the following is a suggestion for managing queues that is mentioned in the textbook? A. Put up a serpentine lane to keep people from jumping ahead in line. B. Use humor to defuse a potentially irritating situation. C. Train your servers to be friendly. D. Assure customers that the wait is fair, and inform them of the queue discipline. E. Tell people in the queue that each will be served as soon as possible.
C: Train your servers to be friendly
Dominant Issue in Services & Implications
Capacity: - Too much capacity leads to excessive costs, -Insufficient capacity leads to lost customers
*Financial and Non-Financial Measures of Performance*
Competitive Analysis
Customer arrival "rates" in a queuing system can be characterized by which of the following?
Constant
B (beta)
Consumer's risk - probability of accepting a bad lot
*Cost Accounting*
Cost Behavior Patterns
*Process Management*
Cost Relevance
Which of the following is NOT an element of a Waiting Line system? Queue discipline. Arrival pattern. Service rate. Cost relationship.
Cost relationship.
*Cost Accounting*
Cost-Volume-Profit Analysis
Avoidable costs
Costs that can be eliminated by choosing one alternative over the other—are relevant costs. Opportunity costs—The benefits that are forgone when the selection of one course of action precludes another course of action—are also relevant costs.
Unavoidable costs
Costs that will remain the same regardless of which alternative is chosen—are irrelevant to the decision process. 2 categories: Sunk Costs, future costs and benefits that do not differ between alternatives - Sunk Costs: A sunk cost is a cost that has already been incurred and cannot be changed. - Future costs and benefits: Future costs that do not differ between alternatives tend to be fixed costs or allocated costs. In general, avoidable costs are opportunity costs and unavoidable costs are not opportunity costs. Opportunity costs generally include relevant costs.
Liquidity
Current Ratio = Current Assets / Current Liabilities Quick Ratio or Acid Test Ratio = (Current Assets − Inventory) / Current Liabilities
19. Which of the following is NOT an element of a Waiting Line system? A) Queue discipline. B) Arrival pattern. C) Service rate. D) Cost relationship.
D) Cost relationship.
21. Which of the following is NOT a basic assumption of the single server model? A) Poisson arrival rate. B) Exponential service time. C) First come-first served queue discipline. D) Finite queue length.
D) Finite queue length.
3. In a single-channel queuing system, the utilization is the same as the: A) arrival rate divided by the queue length. B) service rate multiplied by the number of servers. C) number of channels. D) average number of customers being served.
D) average number of customers being served.
In a single-channel queuing system, the utilization is the same as the: A) arrival rate divided by the queue length. B) service rate multiplied by the number of servers. C) number of channels. D) average number of customers being served.
D) average number of customers being served.
17. The _________ distribution is most often associated with the service time. A) normal B) Poisson C) Beta D) negative exponential E) None of the above.
D) negative exponential
10. The reason there is waiting in an infinite-source queuing system is: A) poor planning. B) inefficient service. C) the system is underloaded. D) variable arrival times. E) low utilization of the system
D) variable arrival times.
The reason there is waiting in an infinite-source queuing system is: A) poor planning. B) inefficient service. C) the system is underloaded. D) variable arrival times. E) low utilization of the system.
D) variable arrival times.
A small vendor has either a good day of sales with an average of $1,000 or a bad day with an average of only $500 for the day. To simulate these outcomes, random numbers from 00 to 99 should be assigned with the intervals determined from the frequency distribution. If, during the last 100 days, the vendor had 27 good days and 73 bad days, which of the following is a correct random-number interval for a bad day? A. 28 to 99 B. 27 to 73 C. 27 to 100 D. 27 to 99 E. 00 to 26
D: 27 to 99
Which of the following is not an example of general-purpose simulation software? A. SIMAN B. GPSS/PC C. RESQ D. GAPE/H E. SLAMII
D: Gape/H
In essence, a queuing system includes several major components. Which of the following is not one of them? A. Source population B. Servicing system C. How the customer exits the system D. The queue discipline E. None of these
D: The queue discipline
Debt Utilization (risk)
Debt to Total Assets = Total Debt / Total Assets Debt to Equity = Total Debt / Total Owners' Equity Debt to Total Assets and Debt to Equity are generally balance sheet-based measures of leverage (i.e., the degree to which assets are being financed by debt) as a measure of risk. Times Interest Earned—Operating Income / Interest Expense
DPMO
Defects per million opportunities. A metric used to describe the variability of a process.
How to design a sample plan
Determine (1) how many units, n, to sample from a lot, and (2) the maximum number of defective items, c, that can be found in the sample before the lot is rejected
assignable variation
Deviation in the output of a process that can be clearly identified and managed.
common variation
Deviation in the output of a process that is random and inherent in the process itself.
Overhead Allocation
Direct materials and direct labor are traced to the Work-in-Process (WIP) account, but overhead must be allocated to WIP. . Actual overhead costs are accumulated separately. At the end of the period, the applied overhead is compared to the actual overhead and an entry is made to adjust any difference. 1. Predetermined Overhead Application Rate = The first step in applying overhead to WIP is to calculate the rate that will be used to apply overhead to production. *Estimated* overhead amount divided by an *estimated* allocation base amount (e.g., machine hours or direct labor hours). The result of this calculation is the overhead allocation rate (or overhead application rate). The overhead allocation rate is normally established prior to the beginning of the period. That is, it is a predetermined rate. Exam Tip Estimated amounts based on currently attainable capacity are always used for this formula—not historical, ideal, or theoretical amounts. This concept is likely to be tested on the CPA Exam.
Other Manufacturing Cost Classifications
Direct or Indirect costs Direct -> direct material, or direct labor Indirect -> Factory Overhead
How to calculate 6 sigma
Divide standard deviation by 6 (Ex. Sigma or standard dev = .005 , divide by 6 and 6 sigma = .00083)
Closing out the OH Account
Dr. Factory OH Applied Cr. Factory OH Control Immaterial differences between the two amounts are usually allocated to COGS. If the difference is material, it should be prorated to WIP, finished goods, and COGS based on their respective ending balances. Overapplied OH is when Applied > Control, then Cr. COGS Underapplied Dr. COGS
Closing out the overhead accounts—
Dr. Factory Overhead Applied Cr. Factory Overhead control - Immaterial differences in applied and overhead are usually allocated to COGS - material differences are prorated to WIP, finished goods and COGS
Dual Pricing
Dual pricing is an attempt to eliminate the internal conflicts associated with transfer prices by giving both the buying and selling divisions the price that "works best" for them: 1. The selling division—Uses the market price as its transfer (out) price: this eliminates the potential for the selling division to see a decrease in its returns just because it sells products internally instead of externally. 2. The purchasing division—Uses standard variable costs as its transfer (in) price: this enhances the usefulness of product costs for decision-making purposes and eliminates the need for the purchasing division to "share profits" with the selling division by agreeing to a transfer price above cost.
A company is concerned about the number of customers who have to wait for service in its customer service department. Assume the rate at which customers are serviced is 12 per hour. Using the infinite queuing notion for the models presented in the textbook, which of the following is the mean time between arrivals? A. 12 minutes B. 6 minutes C. 2 minutes D. 1 minute E. None of these
E: None of these
Which of the following is not a suggestion for managing queues presented in the textbook? A. Try to divert your customer's attention when waiting. B. Segment the customers. C. Encourage customers to come during the slack periods. D. Train your people to be friendly. E. Periodically close the service channel to temporarily disperse the line.
E: Periodically close the service channel to temporarily disperse the line
economic value added (EVA)
EVA = NOPAT − WACC (Total Assets − Current Liabilities) NOPAT = net operating profit after tax; WACC = weighted average cost of capital WACC: Summarizes the overall cost of capital based on the weighted proportion of debt versus equity after reducing the cost of debt by the marginal tax rate. Example For a firm that has $40 million in debt costing 10%, $60 million in owners' equity costing 14%, and a marginal tax rate of 40%, the WACC would be 10.8% = 40/100(10%)(1 − .4) + 60/100(14%). EVA is an economic profit (EP) metric and a specific form of residual income. Like other forms of residual income, EVA is stated in dollars. in dollars. EVA is often used for incentive compensation and investor relations.
cost of quality
Expenditures related to achieving product or service quality, such as the costs of prevention, appraisal, internal failure, and external failure.
A constant arrival rate is more common in productive systems than a variable arrival rate
False
A finite population in waiting line management refers to a population that is large enough in relation to the service system so that the change in population size caused by subtractions or additions to the population does not significantly affect the system probabilities.
False
A tellers' window in a bank is an example of a single-channel, multiphase queuing system.
False
Balanced Scorecard Perspectives
Financial, Customer, Internal Business processes, learning innovation, and growth 1. Financial—Specific measures of financial performance 2. Customer—Performance related to targeted customer and market segments 3. Internal business processes—Performance of the internal operations that create value 4. Learning, innovation, and growth—Performance characteristics of the company's personnel and abilities to adapt and respond to change FIN, CUS, INBUSPROC, INNOVATE AND GROWTH
Which of the following is NOT a basic assumption of the single server model? Poisson arrival rate. Exponential service time. First come-first served queue discipline. Finite queue length.
Finite queue length.
Customer arrival "populations" in a queuing system can be characterized by which of the following?
Finite.
3 forms of certification (ISO 9000)
First Party: firm audits itself against ISO 9000, Second Party: customer audits its supplier, Third Party: a "qualified" national or international standards or certifying agency serves as auditor
Fixed manufacturing costs
Fixed factory overhead—Fixed manufacturing costs (e.g., depreciation on factory buildings and equipment, manufacturing *supervisory* salaries and wages, property taxes and insurance on the factory, etc.)
*Planning Techniques*
Forecasting Techniques
ISO 9000
Formal standards for quality certification developed by the International Organization for Standardization
Who developed Six Sigma Methodology?
General Electric
#1 Threat to manufacturing, according to David Aldrich
Global competition
goal congruence.
Goal congruence occurs when the department and division managers make decisions that are consistent with the goals and objectives of the organization as a whole.
goal incongruence
Goal incongruence exists when actions encouraged by the reward structure of a department conflict with goals for other departments or the organization as a whole.
X bar
Grand Mean - mean of all means
Profitability and Return Metrics
Gross Margin = Revenue − Cost of Goods Sold Contribution Margin = Revenue − Variable Expenses Contribution margin (as opposed to gross margin) focuses on cost behavior so that management can evaluate the consequences on profitability and the break-even point of alternative decision scenarios. CM classifies cost by variable and fixed cost behavior; GM classifies cost by manufacturing v. non-manufacturing. Operating Profit Margin = Operating Income / Sales Profit Margin or Return on Sales = Net Income / Net Sales
Mixed Costs (Also Known as Semi-Variable Costs)
Have a fixed component and a variable component. The variable component causes them to vary in total with changes in volume. The fixed component, however, prevents them from varying in direct proportion to the change in volume.
High degree of customer contact vs. low
High degree is more difficult to control and rationalize; customer can affect the time of demand, exact nature of service, & quality or perceived quality of service b/c customer is involved in the process
Difference between ISO 9000 and ISO 14000
ISO 9000 = business-to-business, ISO 14000 = environmental management
Selling Unit is Operating at Less than Full Capacity
If Division A produces additional units to sell to Division B, no opportunity cost is incurred because no external sales opportunities were forgone: opportunity cost equals zero. The transfer price under these conditions is:' Transfer Price = Additional Capital Outlay Since Div isn't selling everything it produces, there are extra units on hand which it can sell to Div without giving up external sales, meaning $0 Opportunity Cost.
suboptimization
In decentralized organizations, the determination of the transfer price is problematic because the managers of the buying and selling departments each seek to maximize their own departmental revenues and minimize their own departmental costs. When both managers act in their individual best interests, the organization as a whole may suffer
Product Mix Decisions under Constrained Resources
In instances when production capacity is insufficient to meet demand, producing the item that maximizes the contribution margin per unit of the constrained resource and maximizes profitability for the organization.
The Additional Outlay Cost
Includes the variable production costs incurred by the selling unit (raw materials, direct labor, and variable factory overhead) plus any additional costs incurred by the selling unit (storage costs, transportation costs, and administrative selling costs).
Financial Budget
Includes; Cash budget, budgeted income statement, and Budgeted balance sheet
What does ISO stand for?
International Standards Organization
Zero-Base Budgeting
Is a process of starting over each budget period and justifying each item budgeted.
A Rolling Budget
Is an incremental budget that adds the current period and drops the oldest period.
Opportunity Cost
Is the benefit that is forgone as a result of selling internally rather than externally.
Split-Off
Is the point at which products manufactured through a common process are differentiated and processed separately.
*Cost Accounting*
Job Costing
*Cost Accounting*
Joint and By-Product Costing
Joint Costs
Joint costs are sunk costs that are unavoidable, regardless of whether the item is sold at split-off or processed further.
Cost Allocation
Joint costs may be allocated to the joint products in several ways: 1. Relative physical volume—Costs are allocated based on the quantity of products produced. 2. Relative sales value at split-off - costs are allocated based on the relative sales values of the products either at split-off or after additional processing. 3. Net realizable value - Often used when there is no market at split-off, the NRV method uses the ratio of the net realizable value of each product to the total net realizable value to allocate costs.
Joint Probability
Joint probability is the probability of an event occurring given that another event has already occurred. The joint probability is determined by multiplying the probability of the first event by the conditional probability of the second event.
Lean Manufacturing
Lean manufacturing strives for perfection in quality and removes layers of waste to support continuous improvement. Lean production is also known by several other names including flexible manufacturing, mass customization, and agile production.
external benchmarking
Looking outside the company to examine what excellent performers inside and outside the company's industry are doing in the way of quality.
LTDP
Lot tolerance percent defective - percentage of defectives that defines consumer's rejection point
Types of Risk
Strategic Risk Operational Risk Market Risk Various Financial or Non-Operational Risk
Normal vs Abnormal Spoilage
Normal Spoilage costs are inventoriable Abnormal Spoilage is a period cost Scrap is the material left over after making a product. It has minimal or no sales value. Scrap is automatically included in work in process for a product because it is part of the material cost of a product. Normal spoilage is output that cannot be sold through normal channels. It is an inherent result of production. In many cases, it is not cost effective to attempt to reduce the normal spoilage cost to zero. It is a normal part of the production process and, therefore, its cost is included in the cost of units produced. Abnormal spoilage is considered avoidable. It occurs as a result of an unexpected event, such as a machine breakdown or accident. This cost is treated as a loss rather than a normal production cost.
Responsibility for scrap
Normal spoilage is part of the production process and is therefore an uncontrollable cost. —If the amount of scrap is immaterial, any monies received from the sale of scrap can be used to reduce factory overhead, and thereby reduce Cost of Goods Sold. If material then recorded as Revenue in Other Sales
Information
Operations data or information that is provided to the customer to enable efficient and customized services.
Overapplied/Underapplied factory overhead
Overapplied - More overhead applied to production than actually incurred. Difference is credited to COGS at the end of the period Dr. Applied Cr. Control Cr. COGS Underapplied - More actual costs than applied. Differences is debited to COGS Dr. Applied Dr. COGS Cr. Control
*Cost Accounting*
Overhead Variance Analysis
Predetermined OH rate
POR = Estimated Total OH Cots/Estiamted Activity Volume The result of this calculation is the OH allocation rate (or OH application rate). The OH allocation rate is normally established prior to the beginning of the period. That is, it is a predetermined rate.
*Financial and Non-Financial Measures of Performance*
Performance Improvement Tools
acceptance sampling
Performed on goods that already exist to determine what percentage of the products conform to specifications, executed through a sampling plan (sampling to accept or reject the immediate lot of product at hand)
The number of servers in sequence a customer must go through is referred to as: Channels. Queues. Phases. Servers.
Phases.
3 Quality Gurus
Philip Crosby, W. Edwards Deming, Joseph M. Juran
The _________ distribution is most often associated with the arrival rate.
Poisson
Explain PEC
Poisson arrivals: Exponential (use Model 1) or Constant (Use model 2)
Market Ratios
Price Earnings (PE) Ratio—Market Price per Share / Earnings per Share Market-to-Book Ratio—Market Value per Share / Book Value per Share
Prime Costs and Conversion Costs
Prime costs are direct labor and direct materials, while conversion costs are direct labor and manufacturing overhead. You can think of conversion costs as the "costs of converting" direct materials into a product by using direct labor and overhead.
*Cost Accounting*
Process Costing
Process Costing
Process costing is used to accumulate costs for mass-produced, continuous, homogeneous items, which are often small and inexpensive. Since costs are not accumulated for individual items, the accounting problem becomes one of tracking the number of units moving through the work-in-process (WIP) into finished goods (FG) and allocating the costs incurred to these units on a rational basis. Process costing is compatible with the use of normal costing, standard costing, and variance analysis.
a (alpha)
Producer's risk - probability of rejecting a good lot
How does production efficiency relate to customer contact?
Production efficiency decreases as the customer has more contact (& influence) on the system
Implicit service
Psychological benefits that the customer may sense only vaguely
*Financial and Non-Financial Measures of Performance*
Quality Management
*Financial and Non-Financial Measures of Performance*
Ratio Analysis
Process Capability Index (Cpk)
Ratio of the range of values produced divided by the range of values allowed. Shows how well the parts produced fit into the range specified by the design specifications.
Manufacturing organizations maintain three inventories instead of one:
Raw Materials Work-in-Process Finished Goods Costs flow from Raw Materials Inventory through Work-in-Process Inventory and into Finished Goods Inventory.
Asset Utilization
Receivables Turnover = Sales on Account / Average Accounts Receivable Days' Sales in Receivables or Average Collection Period = Average Accounts Receivable / Average Sales per Day Inventory Turnover = Cost of Goods Sold / Average Inventory Fixed Asset Turnover = Sales / Average Net Fixed Asset
Proceeds—May be recognized in several ways:
Recognize when produced - The ultimate sales value of the by-product (less any additional costs necessary to sell the by-product) is deducted from the joint cost of the main products produced when the by-product is produced. This method is preferable as it automatically allocates the cost reductions to cost of goods sold and ending inventory. Recognize when sold—When the by-product value is recognized at the time of sale, the net proceeds can be recorded as other revenue, other income, or as a reduction in cost of goods sold.
Value-Based Management (VBM)
Refers to relatively new financial metrics and processes for using them. The most popular VBM metrics and their creators include economic value added (EVA)—Stern Stewart & Company, and cash flow return on investment (CFROI)—Boston Consulting Group.
Step-Variable Costs
Remain constant in total over a small range of production levels, but vary with larger changes in production volume. Supervisory salaries, utility costs, and shipping costs often behave in this fashion.
Residual Income (RI)
Residual Income (RI) = Operating Income - Required Rate of Return (Invested Capital) Residual income (RI) is a general form of economic profit. Economic profit differs from accounting income in that it recognizes the cost of capital. . RI has often been used as an alternative to ROI to preclude the diluted hurdle rate problem by expressing the return on investment in terms of dollars rather than a rate.
Return Metrics (Return on Investment)
Return on Investment or Return on Assets = Net Income / Total Assets Return on Equity or Return on Common Equity = Net Income / Common Stockholders' Equity
DuPont Formula ROI
Return on Sales (ROS) × Asset Turnover ROS = Net Income/Sales (profit margin) Asset Turnover = Sales/Total Assets
*Financial and Non-Financial Measures of Performance*
Risk Management
*Cost Accounting*
Sales and Direct Cost Variance Analysis
Fixed Overhead
Since fixed overhead does not change with changes in production volume, yet is applied to production based on a unit rate, anytime actual production differs from planned production, a fixed overhead variance results. This variance is known as the *volume variance* and, since it is merely an artifact of the way that we assign fixed overhead to production, it is considered an *uncontrollable* variance. Fixed OH Var Calc: Budgeted Fixed OH - (Std. Fixed OH Rate x Std Qty Allowed for Actual Production) SQA Calc: 1. Calc the OH Application Rate = Fixed OH/(Budgeted qty x qt
Withdrawing funds from an automated teller machine is an example in a queuing system of which of the following "system configurations"? Single channel, multi phase. Single channel, single phase. Multi channel, single phase. Multi channel, multi phase. None of the above.
Single channel, single phase.
DMAIC
Six Sigma methodology: Define, Measure, Analyze, Improve, Control
Six-Sigma Quality—
Six Sigma:A statistical measure expressing how close a product comes to its quality goal. One-sigma means 68% of products are acceptable; three-sigma means 99.7% of products are acceptable. Six-sigma is 99.999997% perfect: 3.4 defects per million parts.
What are Deming's terms for assignable and common variation?
Special Causes & Common Causes
*Process Management*
Special Decisions
*Cost Accounting*
Spoilage, Cost, and Inventory Flow
Standards
Standards are predetermined or targeted costs. Standards are similar to budgeted amounts stated on a per unit basis, but standards differ from budgets in that they actually appear in general ledger accounts, while budgeted amounts do not.
How frequent should samples be taken in acceptance sampling?
Start very frequent, then taper off as confidence in the process is established
Three Step Solution Process- Step 1: Determine equivalent units
Step 1: Determine equivalent units Calculate EU. The term equivalent units (EU) refers to the number of whole units that could have been produced during the period in terms of cost incurred. For example, the cost associated with six units that are 50% complete is equivalent to the cost associated with three units that are 100% complete. Because the units in beginning and ending WIP inventory can be at different percentages of completion in terms of cost, the number of physical units remaining in ending WIP inventory plus the units transferred to FG does not reflect the actual work done.
Which of the following statement is not true? Studies have shown that providing entertainment to customers waiting in line may increase customer dissatisfaction. A direct relationship exists between the cost of providing a service and the cost of making a customer wait. Waiting lines often form because of variability in both arrival times and in service patterns. Reneging is when the customer arrives, views the situation, joins the waiting line, and then after sometime, departs.
Studies have shown that providing entertainment to customers waiting in line may increase customer dissatisfaction.
Negotiated Transfer Prices
The selling division's minimum price will be equal to: 1) its direct costs if it has excess capacity; or 2) its market price if it does not have excess capacity. When no external markets exist for the component being transferred, negotiations are typically based on standard costs and divisional profitability considerations.
Theory of Constraints
The theory of constraints identifies strategies to maximize income when the organization is faced with bottleneck operations. A bottleneck operation occurs when the work to be performed exceeds the capacity of the production facilities. Over the short run, revenue is maximized by maximizing the contribution margin of the constrained resource. Revenue can also be improved by finding ways to relax the constraint (bottleneck).
Cost-plus pricing
The transfer price is based on the selling division's additional costs per unit plus either a fixed dollar amount or a fixed percentage of the cost. the inclusion of an arbitrary charge as part of the unit cost to the purchasing division may lead to suboptimal decisions later on.
Variable cost pricing
The transfer price is set at the variable costs incurred by the selling division to produce and sell the unit to the purchasing division. In general, these are direct materials costs, direct labor costs, variable factory overhead costs, and variable selling and administrative costs. Only use Standard Costs and not Actual costs. Using actual costs allows for manufacturing inefficiencies to be passed onto other departments.
Accounting Cost
These are costs that can be found in the fundamental books of record (e.g., the general ledger).
Joint Products and By-Products are Similar
They are both the result of a single manufacturing process that yields multiple products. Two or more products of significant sales value are said to be joint products when they: Are produced from the same set of raw materials; and Are not separately identifiable until a split-off point.
Margin of Safety
This indicates the difference between the current sales level and the break-even point. the margin of safety indicates how much revenue can decrease before operating income becomes negative.
Marginal Cost
This is the cost of producing one more unit. Incremental cost is the difference between two decision alternatives.
Variable manufacturing costs
This is what is assigned under direct costing: a. Direct material—Materials that are feasibly traceable to the final product b. Direct labor—Wages paid to employees involved in the primary conversion of direct materials to finished goods c. Variable factory overhead—Variable manufacturing costs other than direct material and direct labor (e.g., supplies, utilities, repairs, etc.)
Schedule of Cost of Goods Manufactured
This schedule calculates the dollar value of the goods that were completed during the period and transferred to finished goods. (Beginning Balance + Total Manufacturing Costs − Ending Balance = Cost of Goods Manufactured),
Schedule of Cost of Goods Sold
This schedule is produced by analyzing the Finished Goods Inventory.
Market Risk
This type of risk is associated with large-scale economic events or natural disasters that, to some extent, influence all companies. - Market risk is considered systematic or nondiversifiable risk. - Market risk can be controlled to some degree by insurance for specific hazard risk, but economic events often cannot be controlled. Thus, companies must assess their exposure to economic downturns and use sensitivity analysis to evaluate their position.
Operational Risk
This type of risk is more short-term in nature and involves daily implementation issues. Specific aspects of operational risk include process risk, shared services risk, foreign/off-shore operations risk, and credit/default risk. -Operational risk is best controlled by exceptional execution of the strategic plan. This is often enhanced by attention to customer credit checks, quality, employee training, and management expertise.
Strategic Risk
This type of risk occurs as a consequence of the specific and overall action plans to achieve the organization's mission. This includes general market approaches (e.g., cost leadership versus differentiation) and the changing nature of the competitive environment. - more of a long-term risk - Strategic risk is best controlled by rigorous forecasting and planning, optimizing operating leverage (i.e., proportion of fixed and variable costs), and cost and revenue control.
Manufacturing (or Inventoriable) Costs
Three Factors of Production Costs: Direct Material, Direct Labor, Factory Overhead 1. Direct Material - Cost of significant raw material 2. Direct Labor - The wages and sales paid 3. Factory Overhead - Cost of indirect labor, materials, and other costs that support product process. -- Factory overhead can be variable or fixed.
Difference in face-to-face w/ tight and loose specs
Tight specs - little variation in service process; customer nor server has much discretion in creating the service. Loos specs- process generally understood but there are options in how it's performed or goods involved
Customer Arrival "rates" in a queuing system can be characterized by which of the following?
a.Constant (correct) b.Infinite c.Finite d.All of the above e.None of the above
Total Variance and Total Selling Price Variance
Total Variance = Estimated unit price x estimated qty - actual price x actual qty Total Selling Price Variance = (Actual unit price - estimated united price) x Actual Qty Direct efficiency variance = (AQ - SQ) x SP ( The variance is unfavorable because the actual quantity is greater than expected based on the standard.) quantity variance: SP(SQA-AQ) SQA = Standard Qty per Unit x Actual Quantity produced
Total costs
Total cost—Is the sum of fixed costs and variable costs. As such, total costs take on characteristics from both component costs: total costs per unit vary with changes in production because fixed costs per unit vary with changes in production; total costs in total vary with changes in production because variable costs vary in total with changes in production. helpful Matrix: https://app.efficientlearning.com/pv5/v8/5/content/cpa/html/image_n/cst.pttrns.ST.BEC2017-f001.jpg
*process management*
Transfer Pricing
A car wash is an example of a single-channel, multiphase queuing system.
True
A variable arrival rate is more common in waiting line management than a constant arrival rate.
True
An infinite population in waiting line management refers to a population that is large enough in relation to the service system so that the change in population size caused by subtractions or additions to the population does not significantly affect the system probabilities.
True
Being able to permit interactive debugging of a model so the user can trace flows through the model and more easily find errors is considered a desirable feature of simulation software systems.
True
Being user-friendly and easy to understand is considered a desirable feature of simulation software systems.
True
General-purpose simulation software (GPSS) is really a computer language that allows programmers to build their own simulation models.
True
Highest-profit customer first is a queue discipline discussed in the textbook.
True
Ideally, in waiting line or queuing analysis, we want to balance the cost of service capacity with the cost of waiting T or F?
True
n
sample size
Exam tip about cash budget
You should expect cash budget questions to appear frequently on the exam and are likely to include analysis of the cash effects of increases and/or decreases in receivables and payables. The following matrix summarizes these effects: https://app.efficientlearning.com/pv5/v8/5/content/cpa/html/image_n/bugtng.ST.BEC2017-f002.jpg
Service Package
a bundle of goods and services that is provided in some environment
Flowchart
a diagram of the sequence of operations
Service Blueprint
a flowchart of a process emphasizing what is visible and what is not visible to the customer
High-Low Method
a method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost between the high and low activity levels How to use: 1. From the range of production volumes presented, select the period with the highest production and the period with the lowest production. **ALWAYS USE PRODUCTION VOLUME NOT COST** 2. Calculate the difference in units produced at the highest and the lowest levels of production. 3. Calculate the difference in costs at the highest and the lowest levels of production. 4. Divide the difference in costs by the difference in units—This is your estimated variable cost per unit. 5. Find total variable costs by multiplying the estimated variable cost per unit by the actual number of units produced at either the high or the low level of production. 6. Subtract the total variable costs from the total cost to determine fixed costs.
Statistical Quality Control (SQC)
a number of different techniques designed to evaluate quality from a conformance view
R chart
a plot of the average of the range within each sample
Design of Experiments (DOE)
a statistical methodology to determine cause-and-effect relationships between process variables and output (aka multivariate testing) - permits experimentation with many variables simultaneously
Six Sigma
a statistical term to describe the quality goal of no more than 3.4 defects out of every million units. Also refers to a quality improvement philosophy and program.
Activity-Based Costing Terminology
a. Activities: Procedures that comprise work. b. Cost drivers: Measures that are closely correlated with the way an activity accumulates costs; i.e., the cost driver for production line setup costs might be the number of machines that have to be set up; cost drivers are the basis by which costs are assigned to products (direct labor hours, machine hours, occupancy percentages, etc.). c. Cost center: An area where costs are accumulated and then distributed to products, for example accounts payable, product design, and marketing. d. Cost pools: A group of costs that are associated with a specific cost center. e. Value-added activities: Processes that contribute to the product's ultimate value; includes items such as design and packaging in addition to direct conversion of direct materials into finished goods. f. Nonvalue-added activities: Processes that do not contribute to the product's value; includes items such as moving materials and more obvious activities such as rework; cost reductions can be achieved by reducing or eliminating nonvalue-added activities.
Which of the following is an example of a service business?
a. Law firm, b. Hospital, c. Bank, d. Retail store, e. all of the above (correct)
Based on the service-system design matrix, which of the following has a lower level of "production efficiency"?
a. face-to-face loose specs (correct), b. phone contact, c. internet & onsite technology, d. face-to-face tight specs, e. mail contact
The "A" in DMAIC stands for which of the following?
a.Always b.Accessibility c.Analyze (correct) d.Act e.None of the above
Which of the following are classifications of the "cost of quality"?
a.Appraisal costs b.Prevention costs c.Internal failure costs d.External failure costs e.All of the above (correct)
central problem for virtually all queuing problems is which of the following?
a.Balancing labor costs and equipment costs b.Balancing costs of providing service with the costs of waiting (correct) c.Minimizing all service costs in the use of equipment d.All of the above e.None of the above
Accounts Analysis Solution
calculate the Cost of Goods Manufactured and the Cost of Goods Sold. Given Beg Bal and End Bal Direct Materials, Beg and End Bal WIP, Beg Bal and End Bal Finished Goods. Purchases, direct labor, and overhead applied wIP is given Step 1. Beg Direct materials + Purcahses = Materials Available to Use - Ending Direct Materials = Direct Materials Usd Step 2. Beg Value WIP + Current Period Additions (+ direct materials used + direct labor + OVerhead appied) = Total Manufacturing Costs - Ending WIP = Cost of goods Manufactured Step 3. Beg Finished Goods + COGM = Goods available for sale - Ending finished goods = COGS https://app.efficientlearning.com/pv5/v8/5/content/cpa/html/image_n/spl.invent.ST.BEC2017-f001.jpg
Platform Service Business Model (center & 4 points on ring)
center: Transaction provider, Ring: Platform Business collects, Producers: create product or service, Platform Business: connect customer & provider, Consumer: consume product or service
The number of _____________ represents the number of parallel servers.
channels
Variables (in process control)
characteristics that are measurable
Web platform business
company that creates value by enabling the exchange of information between 2 or more independent groups (consumers & service providers)
Process control procedures
concerned with monitoring quality while the product or service is being produced
Reliability/durability
consistency of performance over time, probability of failing, useful life
internal failure costs
costs for defects incurred within the system
external failure costs
costs for defects that pass through the system
appraisal costs
costs of the inspection and testing to ensure that the product or process is acceptable
dimensions of quality
criteria by which quality is measured
idea behind standards
defects can be prevented through planning and application of best practices at ever stage of business
Conformance quality
degree to which the product or service design specifications are met
C (acceptance number)
denotes the maximum number of defective items that can be found in the sample before the lot is rejected
Run charts
depict trends in data over time
Drawback of service blueprint
describes the features of the service design but does not provide direct guidance on how to make the process conform to that design
DMAIC: Analyze
determine the most likely causes of defects and identify the key variables
Acceptance sampling can...
determine the quality level or ensure quality is within the predetermined level
Range (Rj)
difference between the highest and lowest numbers in a sample
Serviceability
ease of repair
6 Advantages of Acceptance Sampling
economy, less handling damage, fewer inspectors, upgrading of the inspection job, applicability to destructive testing, entire lot rejection (motivation for improvement)
ISO 26000
encourages organizations to discuss social responsibility issues and possible actions with relevant stakeholders
Probability and Expected Value
he probability of a particular outcome is always between 0 (never) and 1 (always). The sum of the probabilities associated with the possible outcomes is always 1. The expected value is the long-run average outcome. The expected value is the long-run average outcome. Expected value is determined by calculating the weighted average of the outcomes: multiply the value of each outcome by its probability and then sum the results.\ example: The useful life of a machine is not known, but there is a 20% probability of a 5-year life, a 50% probability of a 6-year life and a 30% probability of a 7-year life. What is the expected life of the machine? https://app.efficientlearning.com/pv5/v8/5/content/cpa/html/image_n/forecst.tech.ST.BEC2017-f005.jpg Always check to ensure that your probabilities total 100% (or 1, if you use decimals to represent probabilities).
Pareto charts
help to break down a problem into components
AC vs DC differences
https://app.efficientlearning.com/pv5/v8/5/content/cpa/html/image_n/absorb.cst.ST.BEC2017-f012.jpg Effects on Net Income 1. US = UP then AC = DC 2. US > UP then AC < DC 3. US < UP then AC > DC
Regression Equation
https://app.efficientlearning.com/pv5/v8/5/content/cpa/html/image_n/forecst.tech.ST.BEC2017-f010.jpg https://app.efficientlearning.com/pv5/v8/5/content/cpa/html/image_n/forecst.tech.ST.BEC2017-f003.jpg
Total Quality Management (TQM)
in TQM, the concept of quality has to do with how well the item meets its design specifications. This concept of quality is known as "quality of conformance."
Design quality
inherent value of the product in the marketplace
variables sampling
involves measuring a quantifiable attribute such as weight, length, etc
The Master Budget
is a comprehensive plan for the overall activities of a company. The master budget is developed for a specified level of activity: It is a static budget. A static budget is a budget that does not change when actual sales differ from planned sales.
Cost of quality
is based on the philosophy that failures have an underlying cause, prevention is cheaper than failures, and cost of quality performance can be measured.
Break-even
is defined as the sales level at which sales revenues exactly offset total costs, both fixed and variable Note that total costs include period costs (selling and administrative costs) as well as product (manufacturing) costs. The break-even point is usually expressed in sales units or in sales dollars. Formula: (Qty x Sales price) = Fixed Costs (Qty x VC per unit) *not recommended to use on CPA Exam*
Additional contribution margin
is often equal to the difference between the incremental revenue and the incremental cost associated with the prospect of further processing, thus making the item relevant to the decision.
Job order costing
is used to accumulate costs related to the production of large, relatively expensive, heterogeneous (custom-ordered) items - Costs are accumulated in individual work-in-process (WIP) accounts called job order cost sheets, the total of which is accounted for in the WIP control account. - Overhead (OH) is applied based on a predetermined OH rate. - When goods are completed, costs flow on to finished goods and when sold, costs flow into cost of goods sold (COGS).
Utilization rate of server
lambda / mu
Finite population
limited-size customer pool that will use the service and, at times, form a line (when one leaves, size of population is reduced by one)
quality at the source
making the person who does the work responsible for ensuring that specifications are met
Total quality management
managing the entire organization so that it excels on all dimensions of products and services that are important to the customer
What is a central problem in many service settings?
managing the waiting line
When the overall quality of conformance is low
more of the total cost of quality is typically related to cost of failure. For example, a manufacturer substitutes a lower-quality power cord connection on one of its products with the result that, after a short period of use, the power cords break, rendering the product unusable. This problem causes the quality of conformance for the product to be lower and the cost of external failure to be higher.
Six-Sigma Black Belts
must attend a minimum of four months of training in statistical and other quality improvement methods. Six-Sigma black belts are experts in the Six-Sigma methodology. They learn and demonstrate proficiency in the DMAIC methodology and statistical process control (SPC) techniques within that methodology. DMAIC is the structured methodology for process improvement within the Six-Sigma framework. It stands for Define, Measure, Analyze, Improve, and Control.
Sampling plan is defined by
n - number of units in sample, c - acceptance number (can accept up to C bad ones)
The _________ distribution is most often associated with the service time.
negative exponential
Type of chart used for attribute measurements
p charts
Perceived quality
past performance & reputation
6 Dimensions of Design Quality
performance, features, reliability/durability, serviceability, aesthetics, perceived quality
X bar Chart
plot of the means of the samples that were taken from a process
Infinite population
population large enough so that the population size caused by subtractions or additions to the population does not significantly affect the system probabilities (ex: cars on busy highway)
size of samples (x and r charts)
preferably small (4 or 5) (cheaper and quicker)
Performance
primary product or service characteristics
Poka-yokes
procedures that prevent mistakes from becoming defects
Cpk larger than 1 indicates
process is capable
If one sample mean falls outside the control limits...
process is out of control
Two types of Costs
product costs and period costs (or, alternatively, manufacturing costs and selling and administrative costs). Under Absorption and Direct Costing - there are Variable or fixed
Two fundamental cost classifications exist within a manufacturing organization:
product costs and period costs. 1. Product costs—Can be associated with the production of specific revenues (i.e., cost of goods sold). They generally attach to physical product units and are expensed in the period in which the goods are sold. Product costs are also known as inventoriable costs or manufacturing costs. 2. Period costs—Cannot be matched with specific revenues (i.e., accountant's salary) and are expensed in the period incurred. These costs are also called selling and administrative costs.
attributes (process control)
quality characteristics that are classified as either conforming or not conforming to specifications
When variation is reduced...
quality is improved. However, it's impossible to have 0 variation.
process limits
range of variation that a process is able to maintain with a high degree of certainty
specification limits
range of variation that is considered acceptable by the designer or customer
Defectives (of attributes)
refers to the acceptability of a product across a range of characteristics
Defects (of attributes)
refers to the number of defects per unit which may be higher than the number of defectives
contribution margin ratio
represents the percentage of each sales dollar that is available to cover fixed costs. if contribution margin is $60 and sales price is $100 then 60% of every sale is available to cover the total fixed costs Break even sales x 60% - total fixed costs = 0 solve for break even sales Contribution Margin Ratio = Contribution Margin/Sales Revenue
RPN
risk priority number calculated for each failure mode in FMEA (high RPN = target first for improvement)
j =
sample #
Aesthetics
sensory characteristics (sound, feel, look, etc)
Cause-and-effect diagrams
show relationships between causes and problems (aka fishbone diagram)
FMEA (Failure Mode and Effects Analysis)
structured approach to identify, estimate, prioritize, and evaluate risk of possible failures at each stage in the process
prevention costs
sum of all the costs to prevent defects
Describe a logical marketing opportunity in services
the greater the amount of contact, the greater the sales opportunity at the time the service is delivered
queing theory
the mathematical study of waiting lines
Minimum and Maximum pricing
the minimum transfer price (floor) is equal to the avoidable outlay costs, while the maximum transfer price (ceiling) is equal to the market price. However if NO IDLE CAPACITY exists then MARKET PRICE = FLOOR AND CEILING
Extent of customer contact
the percentage of time the customer must be in the system relative to the total time it takes to perform the service
Customer contact
the physical presence of the customer in the system
Upper and lower specification limits
the range of values in a measure associated with a process that is allowable given the intended use of the product or service (acceptable limits for variation) - AKA upper and lower tolerance limits
creation of the service
the work process involved in providing the service itself
m
total number of samples
frequency of sampling
trade off between cost of sampling and benefit of adjusting the system
If sample size is greater than 15, don't use xbar chart w/ R, use...
xbar chart with standard deviation
Participative Budgets
—Allow subordinates to participate in establishing budget targets. - Widely considered a positive behavioral approach, participative budgeting can (1) increase the accuracy of the budget by providing additional information that subordinates bring to the table, and (2) increase perceptions of ownership of the budget targets on behalf of the subordinates.
Strategic Budgeting
—Implies a long-range view to planning based on the identification of action plans to achieve the company's goals and, ultimately, its mission.
Budgetary Slack
—Occurs when managers attempt to build in a cushion for spending and revenue in case targets are not met.
DMAIC: Control
•determine how to maintain the improvements and put tools in place to ensure that the key variables remain within maximum acceptance ranges
DMAIC Measure
•determine how to measure the process and how it is performing and identify the key internal processes that influence CTQs
DMAIC Define
•identify customers and their priorities, a project suitable for Six Sigma efforts, and CTQs (critical-to-quality characteristics)
DMAIC: Improve
•identify means to remove the causes of defects, confirm the key variables, identify the maximum acceptance ranges of the key variables
