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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

  1. In activity-based costing (ABC), which step immediately follows identifying activities?

    Answer: Identifying cost drivers that best correlate to resource consumption for each activity

    After identifying activities, ABC requires selecting cost drivers—the metrics that most accurately trace each activity's resource consumption to products or services.

  2. A plant manager approves a $500,000 energy efficiency project that promises $120,000 in annual savings. The simple payback period is:

    Answer: 4.2 years

    Simple payback = Investment ÷ Annual Savings = $500,000 ÷ $120,000 ≈ 4.2 years.

  3. When preparing a zero-based budget (ZBB), a plant manager must:

    Answer: Justify every expenditure from scratch regardless of historical spending levels

    ZBB requires building the budget from a zero base, forcing justification of every cost rather than incrementally adjusting prior-year actuals.

  4. Which metric directly measures the financial impact of unplanned downtime on the plant P&L?

    Answer: Lost margin due to idle capacity

    Lost margin from idle capacity (units not produced × contribution margin per unit) directly quantifies the P&L impact of unplanned downtime in financial terms.

  5. A plant manager uses rolling forecasts instead of a static annual budget primarily to:

    Answer: Provide a continuously updated view of expected financial performance that supports real-time decisions

    Rolling forecasts replace the static annual budget with a regularly updated projection, allowing managers to make decisions based on current business conditions rather than stale annual assumptions.

  6. A plant manager is evaluating two cost reduction projects: Project A saves $200K with certainty; Project B has a 60% chance of saving $400K and a 40% chance of saving nothing. Based on expected value, which is preferred?

    Answer: Project B, because its expected value ($240K) exceeds Project A's certain savings ($200K)

    Project B's expected value = 0.60 × $400K + 0.40 × $0 = $240K, which exceeds Project A's certain $200K, making B preferable on an expected-value basis.

  7. Inventory carrying cost, typically expressed as a percentage of inventory value, appears on the plant P&L primarily as:

    Answer: Capital charge and working capital cost that affects operating profit and cash flow

    Inventory carrying costs (storage, insurance, obsolescence, capital cost) reduce operating profit and consume working capital, directly impacting the plant's financial performance.