Cost and Efficiency Ratios Quiz

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Questions and Answers

What is the formula for calculating the cost per unit?

Total costs of production / total units produced

How is the efficiency ratio calculated?

Standard hours produced / actual hours worked * 100

What is the formula for determining the capacity utilization ratio?

Actual hours worked / budgeted hours * 100

How do I determine the production volume ratio?

Standard hours produced / budgeted hours * 100 Signup and view all the answers

What is the alternate formula for calculating the production volume ratio?

Standard hours produced / actual hours worked * actual hours worked / budgeted hours Signup and view all the answers

How is the production volume ratio related to the efficiency and capacity ratios?

Production volume ratio = efficiency ratio * capacity ratio Signup and view all the answers

What is the formula used to calculate the IDLE time ratio?

IDLE hours / total hours * 100 Signup and view all the answers

What is the formula for gross profit?

Sales - production expense Signup and view all the answers

How are production expenses calculated?

Direct materials + direct labor + production overheads Signup and view all the answers

What is the formula for calculating the gross profit margin?

Gross profit / sales * 100 Signup and view all the answers

How is operating profit calculated?

Gross profit - operating expense Signup and view all the answers

What is the formula for calculating operating expense?

Production costs + distribution & marketing expense + administration expense Signup and view all the answers

What is the formula for profit to sales ratio (profit margin)?

Operating profit / sales * 100 Signup and view all the answers

How is net profit calculated?

Operating profit - interest paid on debenture and tax Signup and view all the answers

How do I calculate asset turnover?

Sales / capital employed Signup and view all the answers

What is the formula for calculating ROCE (ROI)?

Profit before interest & tax (sales) / capital employed * 100 Signup and view all the answers

What is the alternate formula for calculating ROCE (ROI)?

Sales / capital employed * profit before tax / sales Signup and view all the answers

What is the formula for calculating residual income (RI)?

Profit before tax - notional interest (capital employed * interest) Signup and view all the answers

Study Notes

Cost and Efficiency Ratios

Cost per unit: Total production costs divided by total units produced.
Efficiency ratio: Standard hours produced divided by actual hours worked, multiplied by 100. Measures the efficiency of labor.
Capacity utilization ratio: Actual hours worked divided by budgeted hours, multiplied by 100. Shows how effectively capacity is used.
Production volume ratio: Standard hours produced divided by budgeted hours, multiplied by 100. Examines capacity utilization relative to standard hours.
IDLE time ratio: IDLE hours divided by total hours, multiplied by 100. Indicates unproductive time.
Efficiency ratio calculation: Product of efficiency ratio and capacity ratio.

Profit and Margin Ratios

Gross profit: Sales revenue minus production expenses. Shows profitability before considering other costs.
Production expenses: Direct materials, direct labor, and production overheads. The costs directly tied to producing goods.
Gross profit margin: Gross profit divided by sales, multiplied by 100. Shows the percentage of sales remaining after deducting production costs.
Operating profit: Gross profit reduced by operating expense. Profit after considering all operating costs.
Operating expense: Production costs plus distribution & marketing expenses, plus administrative expenses. Covers all costs associated with running the business, aside from production itself.

Profitability and Asset Ratios

Profit to sales ratio (profit margin): Operating profit divided by sales, multiplied by 100. Measures the percentage of each dollar of sales that becomes profit.
Net profit: Operating profit minus interest paid on debentures and tax. The final profit after all costs and taxes are considered.
Net profit margin: Net profit divided by sales, multiplied by 100. Measures the percentage of sales remaining as net profit.
Asset turnover: Sales divided by capital employed. Measures the efficiency of using assets to generate sales.
ROCE (Return on Capital Employed): Profit before interest and tax (profit) divided by capital employed, multiplied by 100. A measure of the return on capital invested.
Residual income (RI): Profit before tax minus notional interest (capital employed * interest rate). Measures the returns in excess of the minimum required return on capital employed.

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Description

Test your knowledge on various cost and efficiency ratios used in production management. This quiz covers key concepts like cost per unit, efficiency ratio, and capacity utilization ratio among others. Understand how to measure productivity and profitability effectively.