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chapter%20130-2 - Chapter 13 Short-Run Decision Making:...

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September 7, 2011 Accounting 2102 1 Chapter 13 Short-Run Decision Making: Relevant Costing
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short-run decisions are often small-scale actions that serve a larger purpose decision making model 1. identify the decision to be made 2. identify the alternatives and their costs and benefits calculate the differential revenue and/or cost (relevant vs irrelevant) consider opportunity costs ignore sunk costs identify qualitative factors 3. make the decision September 7, 2011 Accounting 2102 2
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Common Short-Run Decision Making Scenarios Make-or-Buy . . . Four Wheel Deal, LLC Special Orders . . . Who Needs Jelly? Company Keep or Drop . . . Stock Your Pantry, Inc. Process Further or Sell . . . Loco for Cocoa, Inc. Product Mix Decisions . . . Don’t Cry Over Spilled Milk, LLC September 7, 2011 3 Accounting 2102
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Make-or-Buy . . . Outsourcing Variable Costs Fixed Costs Capacity September 7, 2011 4 Accounting 2102
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Make-or-Buy . . . Outsourcing Four Wheel Deal, LLC is a manufacturer of four wheel drive vehicles and has a monthly production capacity of 5,000 vehicles. The company currently manufactures all of its transmissions. Related manufacturing costs are as follows: An outsourcing company has been identified and is willing to provide transmissions of equal quality at a cost of $400 each. If outsourced, fixed
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chapter%20130-2 - Chapter 13 Short-Run Decision Making:...

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