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chapter 5 - theory concept of relevant cost in short-term...

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theory concept of relevant cost in short-term decisions The relevant costs are those costs that will differ between two alternatives courses of action. Concept used in evaluating a special order make-or-buy decisions minimizing short-term losses selecting alternatives technologies cost of prediction errors the cost of a prediction error is the difference in actual income earned based on a chosen action versus the income we could have earned by taking a better decision cost-volume-profit analysis with multiple products assumed the product mix is stable maximizing income when there is a scarce resource use of linear programming
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comprehensive problem molded molded bottle toy total production per hour per machine 100 40 MH available 10,000 number of molding machines 4 requested units 100,000 subcontract unit selling price $0.05 $0.30 $0.30 VC $0.02 $0.24 $0.28 CM $0.03 $0.06 $0.02 FC $20,000 additional FC $2,000 question a bottle toy MH available 7,500 2,500 10,000 production required 100,000 production per hour 40 MH required 2,500 The firm should accept the order
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