HTM 341 Exam2 Cheat sheet
HTM 341 Exam2 Cheat sheet HTM 341
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This 4 page Study Guide was uploaded by Alicia Yan on Saturday April 30, 2016. The Study Guide belongs to HTM 341 at Purdue University taught by Chun-Hung Hugo Tang in Fall 2015. Since its upload, it has received 29 views. For similar materials see Cost Control Accounting in Hospitality at Purdue University.
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Date Created: 04/30/16
Chapter Budgeting Centralized Purchasing: Financial planning and analysis system A system to track and provide data in a Pros: Lower prices because of volume/ Desired quality can be obtained more readily/ format useful to managers. (planning, measuring & recording result, evaluating) Foods can be obtained that meet specs Purposes of budgeting: planning, facilitating, allocating resource, controlling profit and Cons: has little freedom to purchase for its own particular needs/ limiting the operation, evaluating performance and providing incentives. individual unit managers’ freedom/ Units can’t take advantage of local specials/ Need a Master budget Formalizing the communication and coordination of operating and distribution network financial plans. (*sales budget>operational budgets>financing budgets) Steps of purchasing food: Operational budgets: Specify how the operations will meet the demand Develop purchase specifications> Select suppliers> Send purchase specifications > Purchases budget (direct materials, ex: food, amenities) Establish par stock levels> Arrange for standing orders> Fill out market quotation Budgets for conversion costs (direct labor, production overhead, SG&A) sheets for competitive bids> Fill and send purchase orders to suppliers Direct labor: chef, service staff 3 components of receiving standards: 1. Quantity= the Steward’s Market Quotation List and the invoice Overhead budget: 2. Quality=The establishment’s specifications as described in purchase orders Direct: fix labor, maintaining, rental, utilities, depreciation Indirect (allocated pro. overhead): supplies, insurance, miscellaneous 3. Prices on invoice= price on the Steward’s Market Quotation List SG&A budget: advertising, licenses, management, administrative Invoice: the bill that come with delivery and to be stamped and signed to acknowledge to quantity, quality, and price and it will forward to the bookkeeper for payment. Financing budgets: Money on the records ≠ cash on hand Receiving Standard Procedures: Cash receipts budget/cash disbursement budget/ cash budget Net sales=gross salesale discount Gross sale= revenue – VC Verify (q,q,p)>Move food>Stamp invoice> Prepare the Receiving Clerk’s Daily Report > Forward paperwork. Conversion costs Costs of the resources to convert purchased inputs into marketable Functions of Invoice Stamp: Verification, signature, acknowledging, approval products or services (Direct labor budget, Production overhead budget) Receiving clerk’s daily report: A summary of invoices for all foods received on a given Ex: wage for cook, depreciation ex, utilities ex, salary for manager Basis for the estimation of the production budgets: day Padding the budget/ Valuable planning tool or waste of time Directs (extremely perishable, purchased daily)/Stores (relatively longer shelf life)/ Other or Sundries (all nonfood items) Dynamic Budgeting Budget targets are updated as the environment changes Potential problems of receiving: Budgeting process for a new business: Start with fixed expenses, not revenue Weight problems: Excessive packaging weight included in invoiced weight Forecast the revenue for a conservative case and then an aggressive case Quality problems: High quality is placed over top of poorer quality product Control problems: Receiver is pressured to sign Check the key ratios to make sure the projections are sound Ch5 Storing & Issuing Chapter 4 Purchasing & Receiving product cycle: Purchasing> Receiving> Storing> Issuing> Producing> Selling and Objectives of Storing: prevent pilferage (Security)/ – maintaining quantity and work efficiency (ensure accessibility)/ maintain product quality and food safety Serving 5 things to achieving objectives: Purposes of Purchasing Controls: Maintain appropriate supplies (quantity)/ Ensure the Condition of storage facilities and equipment/ Arrangement of goods intended Quality/Obtain favorable Prices (Three factors to consider for developing purchasing standards.) Location of facilities/ Security of storage areas/ Dating and pricing of stored goods Beverage Storing: Spirit: longtime at room temperature Perishables: Relatively short shelf life/ Purchased for immediate use Wine: Red: 5055F, White: 4550F NonPerishables: Relatively longer shelf life/ Possible to keep reasonable supply Beer: Pasteurized: 46 months at room temperature Standard purchase specifications: (quality) EX: Black Angus Strip Loin, Boneless, 10” trim, USDA Prime… Unpasteurized: 14 weeks at 40F or lower Arrangement of Foods: Availability according to use (efficiency)/ Fixing definite Benefits: 1. force manager to determine exact requirements in advance. 2. are often location (security)/ Rotation of stock (quality: FIFO) useful in menu preparation. 3.facilitate checking food as it is received. 4. eliminate FIFO: Product on hand is used prior to the more recently delivered products. misunderstandings between stewards and purveyors.5. Eliminates need for detailed verbal descriptions. 6. Allows for true competitive bidding Consideration of Location of Storage Facilities: Efficiency (Speeds up storing, reduce labor)/ Maximizes security/ Quality Call brand: the specific brand requested by a customer (Minimizing infestation of unwanted creatures) Pouring brand: the brand used whenever a customer does not specify a call brand Good habits in securing product inventory: Par stock: maximum amount you want to have right after you receive most recent delivery=Amount required for the period +DEI=Amount to order +amount on hand Moving food quickly/ Open at a specified time/ Control access to storage (one individual have the key during any shift)/ Locked when closed *(only used for perishables and perpetual method for nonperishables) Reason to do physical inventory: accurately determine the quantity onhand DEI (Designed ending inventory): the minimum amount wanted on hand at the end of Directs and Stores become food cost: the period to last until the next delivery = Designed ending inventory =reorder point = Minimum usage until delivery +safety holding Directs: Food received = food issued = food cost Stores: Food received = inventory => food issued = inventory reduction = food cost *Normal usage = Daily usage x Delivery days Requisition: A form prepared by the kitchen staff for the items and quantities of stores *Safety holding = normal usage x safety factor Perpetual Inventory Method: Periodic Order Method: needed for the current day’s production. Calculate the cost of stores. Par stock Par stock Benefits: Forcing the kitchen staff to anticipate and plan/ Allowing storeroom clerk to prepare/ Informing the purchasing agent Reorder point Amount presently on hand Ensure security in issuing: + Normal usage until delivery +Desired ending inventory (DEI) Requisition as needed based on approved production schedules/ With management = Amount to order =Amount to order Factors would affect the level of par stock: storage space, limits on the value of approval/ Sign to acknowledging receipt of the products 3 types of bars: inventory, desired frequency of ordering, usage, minimum order requirements Front bar: serve the public facetoface Steward’s Market Quotation List (by manager) Service bar: orders come through the waiter staff Taking daily inventory of perishables/ Determining suitable order quantities Recording market quotations/ Selecting vendors Specialpurpose bar: set up for particular events, such as a banquet Standing Order (by supplier): Arrangement with a supplier to deliver a set quantity of Fullbottle sales slip: Need to fill out the slip each time a bottle is removed from the bar for a service at a table. goods such as dairy products, and eggs each day without being notified. Cost of directs from the receiving clerk’s daily report Two ways to set quantities for a standing order: A preset amount OR an amount required to replenish to par level Cost of stores from the requisitions Purchase Order: A formal purchasing agreement submitted by a steward to the Food: Beverage: Beginning inventory Beginning inventory purveyor. A written verification of: Quoted price, Quantity ordered, Product +Purchase +Purchase specification, Instructions to the receiving clerk, Payment authorization +Delivery charges +Delivery charges Consideration for Beverage Price Standards: － Ending inventory － Ending inventory Control states: only the state government or those franchised by the state can sell (one Cost of food issued Cost of beverage issued +Cooking liquor +Gratis to bar price for each brand) － Transfers out － Cooking liquor License states: Wholesalers and manufacturers can sell directly to hotels, restaurants, － Gratis to bar － Transfers out retailers. (multiple prices for one brand) Cost of food consumed Cost of beverage consumed Threetier system of alcohol distribution: Set up after the repeal of Prohibition － Employee Meals － Promotions － Grease sales － Misc. deductions － Promotions Cost of beverage Sold Sales history: The systematic recording of all sales achieved during a predetermined － Misc. deductions time period. (Sales revenue, Sales volume) Cost of food sold Factors affect sales: Two types of transfers: Intraunit Transfers: between Bar and Kitchen or Between Kitchens. External: Weather/ holidays/ local events Interunit Transfers: transfers of food and beverage between units in a chain Internal: House count/ facilities & equipment/ promotion/ marketing activities Popularity index: calculated by dividing portion sales for a given item by the total portion sales in the same category and expressed as a percentage Ch8 Monthly cost Sales Forecast: Predicts the number of guests and the revenues in a given future time Reason to do Physical Inventory: Compare records to identify unauthorized or nonstandard issues of food/ Update the period. Importance of sales forecast: record/ Determine the actual cost of the foods and beverages used during the month Necessary to plan the most effective and efficient ways to meet expected sales volume/ Reduce waste (inefficiency), spoilage, and theft Steps of sales forecasting: predict total volume> Adjust the forecast based on factors Latest Price inventory (most recent prices) method: Ending inventory=most recent price * # on hand that affect sales> Forecast individual item portion sales Cost of food issued= total cost ending inventory The production sheet: A form with the names and quantities of all menu items that are to be prepared for a given date. Objective: to reduce excessive costs by setting goals for FIFO: production. Production quantity = forecast – on hand Lower cost of sales/ Higher ending inventory value LIFO: Void Sheet: a record of returned items Lower tax/ Higher cost of sales/ lower profits Potential problems indicated by Void sheet: particular wait staff/ particular cook/ General understaffing/ Theft During inflation period: Matching higher costs with higher revenues Portion Inventory and Reconciliation: Checking the records from BOH against the Less inventoryholding losses when market prices fall Phantom profit: Often used in the context of inventory during periods of rising costs. record from FOH. Objective: portions consumed= portions sold The amount of phantom profit is the difference between the profit reported using Opening inventory = portions on hand at the beginning O.I + Portion prepared + additional preparation = total available historical cost Total available – closing inventory = portions consumed Problems with excess inventory: Spoilage/ Opportunities for theft/ Cash tied up in inventory Causes for the Discrepancies between Portions Consumed and Portions Sold: Labor costs to receive and store foods/ Space required for storage FOH: Missing sales check/ Food given to others without being recorded/ Portions rejected not recorded on a void sheet/ Wait staff sampling Inventory turnover ratio= Cost of Goods Sold / Average Inventory BOH: Food given to others without being recorded/ Food discarded without being showing how many times a company's inventory is sold and replaced over a period. recorded Food cost report: The content and format should be based on management’s need. Include: sales, net food cost, food cost% Limitations of the reconciliation sheet: Mostly used for entrée items Does not show the waste during the production process/ Ch6 Production control: portion Portion determined by: Portion size, ingredients, proportions of ingredients, production method. Standard recipes: The official instructions on the ingredients and procedures used in food preparation. Standard Portion Size: The fixed quantity to be served in return for the fixed selling price Standard Portion Cost: The dollar amount a standard portion should cost = total purchase price/ # of portions produced Benefits: Establishing prices/ Judging operating efficiency Benefits of consistency in portion size: Reduce excessive costs/ Customer satisfaction/ Eliminate the tension between staff members Butcher test: Portioned before cooking & Finding the value of usable parts Cooking loss test: Determining standard portion cost for items that are portioned after cooking Cost Factors: (CFs are ratios, not costs) Cost Factor per lb= cost per usable lb/ price per lb Cost Factor per portion= portion cost/ price per lb When market price changes, but portion size same: Cost per lb. = CF_lb. x new price / lb. Portion cost = CF_prt x new price / lb. When market price changes and portion size changes: portion cost = cost per lb. X portion size (lb) =CF_lb. X new price/lb X portion size (lb) Yield Percentage (Yield Factor): The percent of a whole purchase unit of meat, poultry, or fish available for portioning after required inhouse processing = usable wt. / total wt. on the butcher test = salable wt. / total wt. on the cooking loss test = (#of portions × Portion size) / Quantity purchased So: #of portions × Portion size = quantity purchased x yield factor Chapter 7 Production control: Quantity Reason of control production quantities: Controlling portion cost alone is not enough/ under production can cause lost sale, lower quality/ over production can cause waste and lower food quality The 3 standard procedures to control production volume: Maintaining sales history/ Forecasting portion sales/ Determining production quantities Excel Forecasting 3 conditions to receive tip credit: Why forecasting: Necessary to plan the most effective and efficient ways to meet Tips are regularly received scheduling/purchasing/marketing)g/production quantity/ Tips are equal or grater than the tip credit Customers have unrestricted right to determine the amount and to whom Planning is a major function of management Meal credit: A reasonable estimate of the cost of food, supplies and preparation (historical data based/ advance booking model/ combined model), choicebased models labor historical data based: Considers only final number of rooms or arrivals for a checkin day. (regression, moving average, exponential smoothing) IRS rule on automatic tips: advance booking model: Considers only the buildup of reservations over time From January 2013, the IRS began to classify automatic gratuities as service for a checkin day Qualitative Methods: Market research: Gathering information from potential charges. (Service charges are treated as regular wages, which are subject to payroll customers regarding a “new” product or service/ Delphi method: A formal process and federal income tax withholding) conducted with a group of experts to achieve consensus on future events as they The Affordable Care Act and Small Businesses affect the company’s markets Companies with 50 employees or more must provide healthcare coverage that meets (Help understand the backgrounds of quantitative data, Qualitative method is best based on quantitative method, new business doesn’t have quantitative data) new minimum standards Considerations for selecting methods: Effectiveness of the method/Costs of using Pros: Helps small employers that want to offer insurance / Premiums will be more the method/Forecasting skills of personnel involved/The purposes for which the steady and predictable forecasts are made Cons: Higher cost of hiring / Not hiring the 50th employee to avoid the penalty/ Regression (causal relationship) Premiums could be increased by as much as 50% X: independent variable/predictor variables/input Y: dependent variable/forecast variables/outcome Layoffs Cost: Rehiring & training costs/ Morale costs/ Leadership costs/ Brand Multiple R: correlation between X and Y/ Rsquare: square term of R. Variance of equity costs/ (Wall Street cost) stock price may tank Y explained by X./ Adjusted Rsquare: Variance of Y explained by X while Employee satisfaction valuable: value < 0.05 / X variable coefficient: the change of Y for every one unit change in Yes. Satisfied employees are efficient and produce quality works/ Employee X, pvalue < 0.05 EX: Y= Intercept coefficient+ X1* coefficient X1+X2* coefficient X2 satisfaction is worth more for the service industry than manufacturing industries/ Moving Average (good for smoothing trend business) MA3: moving average with 3 periods/ Forecasting: average last 3 periods of actual Ch19 Scheduling revenue to forecast the fourth period revenue. / Residual: =ForecastActual (Residuals should be distributed fairly evenly above and below their mean, which is 3 steps of establishing performance standards: quite close to zero) /Absolute Deviation: ABS (residuals) Organizing the enterprise (quality standard) / Preparing job descriptions (quantity /Absolute Percentage Error: = Absolute Deviation divided by actual revenue. MAD standard)/ Scheduling employees (cost standard) (Mean Absolute Deviation): Average of all AD/ MAPE (Mean Absolute 3 factors to consider for scheduling: Percentage Error): Average of all ADP%. Variablecost personnel/ Fixedcost personnel/ Business volume *MA period gets longer, you let errors average out (smoothing) * * MA period gets shorter, the MA tracks more closely to the baseline* Standard staffing requirement: *MAPE is smaller the better, means less errors* Shows the required number of variablecost personnel at several levels of business Exponential Smoothing (weighted moving average) volume. (Based on the evaluation, by job category, varies by service style and smoothing constant (S): How much we decide to take into account of the restaurants) forecasting error/ damping factor: 1S Forecast t ctual *t1 forecast *t1 S) Standard work hours = Number of servers × hours of the meal time Choose the smoothing constant that MAPE is the smallest Standard Labor Cost= Standard labor hours*wage per hour Four components of a baseline: trend: a projection of the longrun estimate of the standard labor cost percent= standard labor cost/ total sales activity being evaluated/ cycle: the fluctuation over time long than a year/ seasonality: the fluctuation over time within a year / random: always present in Why is it easier to achieve higher efficiency at high business volume? historical data and cannot be forecasted High levels of efficiency are more difficult to achieve at lower business volume Two components of the data: signal: regular and predictable because the higher business volume, the higher standard work hour per cover, each noise: irregular and unpredictable. If noise is random, it averages out. single server has more customers to serve. Factors to consider for adjusting quantitative forecasting results: Past sales levels and trends/ General economic trends/Industry specific factors/ Political and legal events/ Market research studies/ companies’ planned policies Budget control Limitations of forecasting: Three steps of budgetary control: Relying on historical data/ Forecasting involves uncertainty/ Less accurate than Setting cost standards/ Measuring actual costs/ Determining cost variance ideal/ Shortrange forecasting is easier than longrange forecasting price variance: = actual quantity*(actual pricestandard price) Ch18 Labor cost considerations quantity variance: = standard price*(actual quantitystandard quantity) Goal of labor cost control: improve efficiency or productivity (labor cost per unit), labor rate variance: = price variance in labor cost analysis not reducing total labor costs. efficiency variance: = quantity variance in labor cost analysis Three payroll expenses: pays (direct current compensations), benefits, taxes Types of compensation: Current compensation: Direct (salaries, wages, tips, Sales variance: = Quantity variance + Price variance bonuses, commissions) / Indirect (paid vacations, health benefits, life insurance, material cost variance: =quantity variance + cost variance free meals) Deferred compensation: Pension benefits / Social Security (Federal labor cost variance: = efficiency variance (hours) + labor rate variance Insurance Contribution Act) Payroll Deductions: Mandatory deductions: FICA taxes (6.2% Social Security + Favorable or Unfavorable: 1.45% Medicare) / Federal Income taxes/ State and City Income taxes/ A variance is favorable or unfavorable is determined by its impact on the profit. Voluntary deductions: Insurance and pensions/ Charity/ Union dues (right to work) (NOT decided by the positive or negative sign) Increasing Productivity: Make people want to do more (Higher pay, Prizes for Who is most able to influence directmaterial price and quantity variances? improvement, Employee recognition, Threats, Encouragement)/ Make people able convenience products, Better methods, Training)on, Improved layout, Use of Chef Calculation: Who is most able to influence direct labor rate and efficiency variances? manager Net Pay = Gross earnings – Deductions Padding the budget: Underestimating sales, overestimating costs. (then the actual Gross earnings = wage (or salary) + bonus, commissions Overtime rate (for wages employees only) >= 1.5 regular rate sale is higher than the budget sale, it looks better for manager, to cope any uncertain Bonus & commissions: For salary employees & sales personnel cost, and sometime budget often cut.) Determinants of Labor Cost Budget revisions and reviews: Fast food restaurant: Labor legislation/ labor contracts/ use of parttime/ location/ March executive committee meeting/ June revision/ November update sales volume/ training/ labor turnover rate Full service restaurant: outsourcing/ equipment/ layout/ preparation/ service style/ Flexible budget: Use the actual sales/ number of customers to calculate the expense budgets. (The numbers are what the expenses are “supposed to be” based menu/ hours of operation/ management on actual sales) Determining Hours of Operation:(use CVP equation) Dynamic Budgeting: Budget targets are updated as the environment changes EX: owner want to extend the opening hours for one more hour Labor cost / hour: $75 / Heat, light, and gas=$12 /Variable cost is 40% of sales (Allocate money where and when it’s needed/ Don’t use budgets to evaluate Q1: What additional sales are necessary to break even on the extra hour? performance because budget targets/ Devise a richer set of performance metrics/ Make bonuses incremental) Q2: Earn $280 in sale for extra hour, what income can apply to overhead expense? Participative budgeting: Most people will perform better and make greater Solution: Q1: Rev=(FC+OI) / (1VC%)=75+12/140%=145 attempts to achieve a goal if they have been consulted in setting the goal. (when we Q2: 28075280*0.4=93 (Heat, light, and gas is overhead expense) create budget by ourselves, we will have more passion to achieve goal, “our” 3 components of receiving standards: budget versus the budget “imposed” on us) 1. Quantity= the Steward’s Market Quotation List and the invoice Shortcomings: Too much participation => indecision and delay/ Discussion 2. Quality=The establishment’s specifications as described in purchase orders accentuate difference opinions/ Budget padding can be severe 3. Prices on invoice= price on the Steward’s Market Quotation List Ch5 Storing & Issuing Objectives of Storing: prevent pilferage (Security)/ – maintaining quantity and Charley’s Family Steak House (B) work efficiency (ensure accessibility)/ maintain product quality and food safety 5 things to achieving objectives: What are the major sales and expense factors that contribute to the difference between actual profit and planned profit? Condition of storage facilities and equipment/ Arrangement of goods Discount and coupon expense, advertisement expense, miscellaneous expense, Location of facilities/ Security of storage areas/ Dating and pricing of stored management goods What are the expenses that can be controlled by Alex Pearson? Directs and Stores become food cost: Discount and coupon expense, labor cost, food cost, advertising expense, Directs: Food received = food issued = food cost miscellaneous, management cost. Stores: Food received = inventory => food issued = inventory reduction = food What are the expenses that cannot be controlled by Alex Pearson? cost Depreciation cost, insurance cost, license and fee cost, base rent. Cost of directs from the receiving clerk’s daily report Is the 2008 Plan Budget a fair benchmark to evaluate Alex Pearson’s cost Cost of stores from the requisitions control performance? What would be a fair benchmark? Food: Beverage: Not fair. Because the budget is not based on the realistic situation and there are a lotBeginning inventory Beginning inventory of costs is not controlled by the manager. And the actual profit is not affected by the +Purchase +Purchase +Delivery charges +Delivery charges manager but also affected by the market, economy trend etc. Cost of food issued Cost of beverage issued How to quantify the profit impacts of increased customer count, change in +Transfer In +Transfer In customer mix, and higher gross average check? What is the logical sequence of +Cooking liquor +Gratis to bar the analysis? － Transfers out － Cooking liquor － Gratis to bar － Transfers out Profit impact of customer count variance equivalent to the sum of quantity variance Cost of food consumed Cost of beverage consumed of sales revenue and costs SP*(AQSQ) － Employee Meals － Promotions What are the costs/expenses that will be affected by customer count? － Grease sales － Misc. deductions Discount and coupon expense, food cost, server labor cost, other operation expense, － Promotions Cost of beverage Sold overage rent, advertising expense － Misc. deductions Cost of food sold What are the costs/expenses that will be affected by average check? Other operation expense, overage rent, advertising cost Ch6 Production control: portion Portion determined by: Portion size, ingredients, proportions of ingredients, production method. Chapter Budgeting Master budget Formalizing the communication and coordination of operating and Benefits of consistency in portion size: Reduce excessive costs/ Customer financial plans. (*sales budget>operational budgets>financing budgets) satisfaction/ Eliminate the tension between staff members Operational budgets: Butcher test: Portioned before cooking & Finding the value of usable parts Cooking loss test: Determining standard portion cost for items that are portioned Purchases budget (direct materials, ex: food, amenities) Budgets for conversion costs (direct labor, production overhead, SG&A) after cooking Direct labor: chef, service staff Standard Portion Cost: The dollar amount a standard portion should cost = total purchase price/ # of portions produced Overhead budget: Cost Factors: (CFs are ratios, not costs) Direct: fix labor, maintaining, rental, utilities, depreciation Indirect (allocated pro. overhead): supplies, insurance, miscellaneous Cost Factor per lb= cost per usable lb/ price per lb SG&A budget: advertising, licenses, management, administrative Cost Factor per portion= portion cost/ price per lb When market price changes, but portion size same: Net sales=gross salesale discount Gross sale= revenue – VC (COGS +labor) Cost per lb. = CF_lb. x new price / lb. Gross margin= (net salecogs)/revenue Portion cost = CF_prt x new price / lb. Chapter 4 Purchasing & Receiving When market price changes and portion size changes: portion cost = cost per lb. X portion size (lb) Purposes of Purchasing Controls: Maintain appropriate supplies (quantity)/ =CF_lb. X new price/lb X portion size (lb) Ensure the intended Quality/Obtain favorable Prices (Three factors to consider for Yield Percentage (Yield Factor): The percent of a whole purchase unit of meat, developing purchasing standards.) Par stock: maximum amount you want to have right after you receive most recent poultry, or fish available for portioning after required inhouse processing = usable wt. / total wt. on the butcher test delivery=Amount required for the period +DEI=Amount to order +amount on hand = salable wt. / total wt. on the cooking loss test *(only used for perishables and perpetual method for nonperishables) = (#of portions × Portion size) / Quantity purchased DEI (Designed ending inventory): the minimum amount wanted on hand at the So: #of portions × Portion size = quantity purchased x yield factor end of the period to last until the next delivery = Designed ending inventory =Reorder point = Minimum usage until delivery +safety holding Chapter 3 CVP *Normal usage = Daily usage x Delivery days Sales – (Variable cost + Fixed cost) = OI *Safety holding = normal usage x safety factor Perpetual Inventory Method: Periodic Order Method: Rev*CM%=CM> CM=PriceVC> VC+CM=Rev =VC+(FC+OI) Par stock Par stock Rev*CM%=FC+OI > CM = FC + OI> CM% = 1 – VC% CVP Equation: Rev= (FC+OI)/CM%=(FC+OI)/(1VC%) Reorder point Amount presently on hand #of units=(FC+OI)/(CM/Units) =(FC+OI)/(PriceVC/Unit) + Normal usage until delivery +Desired ending inventory (DEI) = Amount to order =Amount to order Break even equation: OI=0 Factors would affect the level of par stock: storage space, limits on the value of Chapter Analysis inventory, desired frequency of ordering, usage, minimum order requirements Du point Analysis= ROE = NI/Equity = NI/sales x sales/assets x Steward’s Market Quotation List (by manager) assets/equity=profit margin x asset turnover x equity multiplier Taking daily inventory of perishables/ Determining suitable order quantities Recording market quotations/ Selecting vendors Standing Order (by supplier): Arrangement with a supplier to deliver a set Profitability = operations management (income statement) x asset management (income statement & balance sheet) x debt management (balance sheet) quantity of goods such as dairy products, and eggs each day without being notified.
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