P&L Ownership & Cost Reduction Flashcards
7 cards from real CPM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 P&L Ownership & Cost Reduction flashcards as text
A plant manager notices that the cost of goods sold (COGS) as a percentage of revenue has crept from 62% to 68% over six months. Which action most directly addresses this variance?
Answer: Conduct a root-cause analysis on material, labor, and overhead cost drivers
A root-cause analysis on the three COGS components—material, labor, and overhead—pinpoints the specific driver(s) before corrective action is taken.
Which financial metric best measures how efficiently a plant converts revenue into operating profit, excluding interest and taxes?
Answer: Operating (EBIT) margin
Operating (EBIT) margin—operating income divided by revenue—reflects the plant's core profitability after all operating costs but before financing and tax effects.
During a budget review, a plant manager finds that actual overhead absorption is $120,000 under-absorbed versus the standard. The most likely cause is:
Answer: Actual production volume was lower than the budgeted volume used to set the overhead rate
Under-absorption occurs when actual production volume is lower than planned, so fixed overhead is spread over fewer units than the rate assumed.
A plant manager wants to reduce conversion costs by 5% without affecting output. Which lever typically yields the fastest results?
Answer: Eliminating non-value-added steps in the production process through a kaizen event
Kaizen events can rapidly eliminate waste and non-value-added activities, reducing conversion costs quickly without major capital investment.
On a plant P&L, depreciation of manufacturing equipment is classified as:
Answer: A product cost included in overhead and ultimately in COGS
Manufacturing equipment depreciation is a product (inventoriable) cost that flows through overhead, into WIP, then finished goods, and finally COGS when product is sold.
A plant manager commits to a $2M cost reduction target. After six months, $800K has been realized. What should the manager report to leadership?
Answer: $800K realized, $1.2M in pipeline with revised timing and confidence levels
Transparent reporting of realized savings alongside pipeline status and confidence levels enables leadership to make informed decisions and allows timely corrective action.
Which cost reduction strategy carries the highest risk of negatively impacting product quality and customer satisfaction?
Answer: Reducing direct material specifications below engineering minimums to lower unit cost
Cutting material specifications below engineered minimums can compromise product integrity, leading to defects, returns, warranty claims, and customer attrition.