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Chapter 8 outline - i Does the product provide a positive...

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Chapter 8: Student Summary Handout 1. How managers make decisions a. Define goal b. Identify alternative courses of action c. Gather and analyze information d. Choose the best alternative 2. Understand relevant information a. Expected future costs, savings, revenues e. Alternative differences f. Irrelevant information such as sunk costs b. Relevant nonfinancial/qualitative information  3. Short-term special decisions a. Focus on relevant revenues, costs, and profits b. Use contribution margin approach 4. Decisions managers must make a. Special orders b. Pricing decisions i. Regular pricing  1. Stockholder expectations 2. Customer expectations 3. Price-takers versus price-setters ii. Target pricing iii. Cost-plus pricing c. Dropping a product, department, or territory
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Unformatted text preview: i. Does the product provide a positive contribution margin? ii. Will fixed costs continue to exist, even if the product is dropped? 1. Unavoidable iii. Are there any direct fixed costs that can be avoided if the product is dropped? iv. Will dropping the product affect sales of other products? v. What can be done with any freed capacity? d. Product mix i. Constraints ii. Product mix when demand is limited e. Outsourcing (make or buy) i. Can costs be eliminated by outsourcing? ii. No incremental revenue iii. How much to purchase it elsewhere iv. Opportunity cost f. Sell as is or process further i. Revenue “as is” ii. Revenue if processed further iii. Cost to process further iv. Sunk costs...
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