Chapter8StudentFall2018.docx - Chapter 8 \u2013 Short-Term Business Decisions 8.1 Decision-Making Part of planning directing and controlling functions

Chapter8StudentFall2018.docx - Chapter 8 – Short-Term...

This preview shows page 1 - 4 out of 16 pages.

Chapter 8 – Short-Term Business Decisions8.1Decision-Making Part of planning, directing and controllingfunctions:Relevant and Irrelevant InformationRelevant Expected future (cost and revenue) dataDiffers among alternative courses of actionIs both quantitative and qualitativeIrrelevantCosts that do not differ between alternativesSunk costs (incurred in past and cannot be changed)Qualitative Factors (Nonfinancial)Some examples:Impact on employee moraleQuality of products made or purchasedImpact on existing customers Incremental Analysis Approach to Decision-MakingInstead of looking at the company’s entireincome statement under each decision alternative, we will:1)Focus on relevantrevenues, costs, and profits; ignore irrelevantdata2)Use contribution margin approachthat separates variable costs from fixed costsChoose bestalternativeDefinegoalsIdentifyalternativecourses ofactionGather andanalyzeRELEVANTdataFollow-up: Compare actual withanticipated resultsImplementdecision
Background image
Swenson’s Meats is considering whether it should replace a meat grinder patty shaper machine. The new machine will produce 25% more hamburger patties than the old machine in the same amount of time. The purchase of the new machine will cause fixed selling costs to increase, but variable selling cost per unit will not be affected. The new machine will require installation by a specialty engineering firm. If the new machine is purchased, the old machine can be sold to an overseas meat processing company. The old machine requires frequent (quarterly) repairs and maintenance to keep it running. The new machine will require maintenance only once per year. The new machine will be paid for by signing a note payable with the bank that will cover the cost of the machine and its installation. Swenson’s will have to pay interest monthly on the note payable for the new machine. The note payable that was used to purchase the old machine was fully paid off two years ago.In the following chart, indicate whether each of the costs described would be relevant or not to Swenson’s Meats’decision about whether to purchase the new machine or to keep using the old machine.ItemRelevantNot Relevanta.Cost of new machineb. Cost of old machinec.Added profits from increase in production from new machined.Fixed selling costse.Variable selling costsf.Sales value of old machineg.Interest expense on new machineh.Interest expense on old machinei. Book value of old machinej.Maintenance cost of new machinek.Repairs and maintenance costs of old machinel.Installation costs of new machinem.Accumulated depreciation on old machinen.Cost per pound of hamburgero.Installation cost of old machine8.2Special Order DecisionsA special order occurs when a customer requests a one-time order at a reducedsales price, often for large quantities.
Background image
Other Considerations:Will the special order affect regular sales in the long run?
Background image
Image of page 4

You've reached the end of your free preview.

Want to read all 16 pages?

  • Spring '17

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors