Formulas for Strategic Managerial Analysis

Productivity Measurement Time Measurement Lean Manufacturing Theory of Constraints Quality & Throughput Analysis Cost of Quality Estimating Hidden Quality Cost Methods Strategic Profitability Analysis Performance Measurement & Compensation Strategic Marketing Decisions Analysis Product Life Cycle Management Pricing Products & Services Textual Content: Productivity Measurement Partial Factor Productivity Ratio: Output / Cost of input based on Current Prices Total Factor Productivity: Output / Cost of all inputs Productivity Neutral Quantity (PQ): Current Year Output / Prior Year Output Price Recovery Component: (Current Year Price / Prior Year Price) * PQ Productivity Component: (Current Year Output - PQ) Profit: Sales - Cost of inputs Time Measurement Velocity: Units / time Cycle Time: Time / Units Manufacturing Cycle Time (MCE): Value-added time + Throughput time Conversion cost per unit: (Cycle time - Inspection time) * Conversion cost per hour Delivery Cycle time: Wait time + Throughput time Customer Response time: Receipt time - Throughput time Waiting time: Total Processing Time - (Total Processing Time - (First Unit Time * Bottleneck)) Lean Manufacturing Total Processing Time: (First Unit Time * Bottleneck) Theory of Constraints Throughput: Revenue - Variable cost of goods sold Net Operating Income: Throughput - Operating Expenses Quality & Throughput Analysis Cost of Quality: Control cost + Failure cost Control Cost: Prevention cost + Appraisal cost Failure cost: Internal cost + External cost Total External FC: Measured External Fixed cost + Time & Material Price * Time Hidden Quality Cost: Multiplier * (Hourly Labor cost + Hourly Overhead cost + Mark-up) Estimating Hidden Quality Cost Methods The Multiplier Method: (Measured Quality Cost / Multiplier) = Required Quality Cost Taguchi Quality Loss Function: L(y) = k * (y - T)^2 Strategic Profitability Analysis Throughput: MCE * Productivity * Good units yield Performance Measurement & Compensation Return on Investment: Income / Invested cost of net inv. Residual Income: Income - Imputed cost of net inv. Return on Sales: Revenue - Operating expenses Strategic Marketing Decisions Analysis WACC: (Total Assets - Current Liabilities) / Total Assets Product Life Cycle Management Whole Life Cycle Cost: Life Cycle Cost - Life Cycle Revenue Pricing Products & Services Target Cost: Predestined Selling Price - Desired Profit Profit Maximizing Price: Variable cost + (1/(1 + Price Elasticity)) * Fixed cost Price Elasticity: In (1+% change in demand) / In (1+% change in price) Costing Methods: Incremental Costing Product Bundling Product Mix Contribution Margin Static Budget Variance Flexible Budget Variance Sales Mix Variance Sales Volume Variance Market Share Variance Market Size Variance Time Value of Money: Future Value Present Value Cash Flow Return on Investment Accrual Accounting Rate of Return Simple Payback Period Net Present Value (NPV) Internal Rate of Return (IRR) Textual Content: Costing Methods: Incremental Costing: Incremental = sequential /Stop down Product Mix: Contribution Margin / Input per unit Static Budget Variance: Actual Total CM - Budgeted Total CM Flexible Budget Variance: (Actual Unit CM - Budgeted Unit CM) x Actual Volume Sales Mix Variance: (Actual Mix - Budgeted Mix) x Actual Volume Sales Volume Variance: (Actual Volume - Budgeted Volume) x Budgeted Unit CM Market Share Variance: (Actual Market Share - Budgeted Market Share) x Actual Industry x Budgeted Unit CM (average) Market Size Variance: (Actual Industry - Budgeted Industry) x Budgeted Market Share x Budgeted Unit CM (average) Time Value of Money: Future Value: FV = PV x FV Factor Present Value: PV = FV x PV Factor Cash Flow Return on Investment: Average Annual Cash Inflow / Net Investment Accrual Accounting Rate of Return: Average Annual Net Income / Average Investment Simple Payback Period: Years before full recovery + (Remaining unrecovered investment at the end of the year before full recovery / Cash flows during the year) Net Present Value (NPV): = Σ (Cash flows / (1 + r)^t) - Yo If r = no rate given, find WACC: cost of capital = (1 - tax rate) x cost of debt + (1 - tax rate) x cost of equity x weight of equity Internal Rate of Return: The discount rate that makes the NPV of an investment zero.