MyChapter_18 - CHAPTER 18 ACTIVITY RESOURCE USAGE MODEL AND...

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Unformatted text preview: CHAPTER 18 ACTIVITY RESOURCE USAGE MODEL AND TACTICAL DECISION MAKING QUESTIONS FOR WRITING AND DISCUSSION 1. Tactical decision making is choosing among alternatives with an immediate or limited end in mind. 2. Tactical decisions should support the overall strategic objectives of an organization. Of- ten, the strategic objectives are served by small-scale actions. For example, making a part instead of buying it may lower costs of production and thus serve the strategic cost leadership objective. Or it may serve the objective of differentiation by helping to pro- duce a higher-quality final product than pro- duced by competitors. 3. Tactical cost analysis is the use of relevant cost data to identify the alternative that provides the greatest benefit to the organiz- ation. Steps 35 are the major components of tactical cost analysis: predicting costs, comparing relevant costs, and selecting the lowest cost alternative (or alternative with the greatest benefit). 4. Answers will vary. I (second author) have used this as a writing assignment for several years. It has been very successful; students enjoy analyzing their own decisions, whether it is buying a car, moving from the dorm into an apartment, or buying a puppy. Some- times, the application of the model leads to new insights into their problems. 5. Relevant costs and revenues are future costs and revenues that differ across altern- atives. Depreciation on an existing asset represents an allocation of a past cost. Past costs are never relevant. 6. A future cost that is not relevant is a future cost that does not differ across the alternat- ives being considered. For example, rent on a factory in a keep-or-drop decision is a fu- ture cost, but it will be there whether one of the factorys products is dropped or kept. 7. Disagree. Relevant costs are just part of the overall tactical decision model. Strategic ef- fects and other qualitative factors may affect the decision. The effect may be such that a higher-cost alternative may be chosen. 8. Yes, direct materials can be irrelevant. In a make-or-buy decision, any direct materials already in inventory are irrelevant. In a make-or-buy decision, the salary of the pro- duction supervisor would be fixed but relev- ant to the decision. Leasing equipment is relevant if it is a future cost that differs across alternatives. In most cases, this would not be a factor because it entails the acquisition of multiperiod capacity and really belongs to the capital expenditure decision domain. 9. The only role of past costs is predictive. They can be used to help predict future costs. 10. Flexible resources are relevant whenever the demand for an activity changes across alternatives. Resource spending will differ across alternatives, making the cost of the activity relevant....
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MyChapter_18 - CHAPTER 18 ACTIVITY RESOURCE USAGE MODEL AND...

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