201-Wk9&10-Decision Making-S'12 (STUD)

201-Wk9&10-Decision Making-S'12 (STUD) - Mgmt 201...

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page 1 Mgmt. 201 - Managerial Accounting – Week #9-10 Using the Firm’s Costing Numbers To Make Decisions Professor Thoman page 2 Part 2 – DECISION MAKING A. Making the decision: Using the accounting information to make good choices. How does a manager make informed decisions that will increase the firm’s profits? B. Budgeting: Planning for the effect of the firm’s decisions on the firm’s operations and earnings. Given the company’s decisions, how much income can the company expect to earn? What are the company’s targets? C. Performance evaluation: Evaluating the impact of the decisions and making revisions. How well did the company do relative to its targets? Why were targets or goals not attained? What changes should the company make?
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page 3 Short-run decision making – Chapter 14 In Chapter 14 we will: I. Look at some decisions a firm must make. II. Review the cost terms that are relevant to decision making. III. Study a general approach to decision making and examine several important decisions: IV. Study joint products. V. Work several additional problems. page 4 Extra
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page 5 I. Types of decisions a firm must make Examples of production decisions that a firm might make are as follows: Should the firm add (drop) a product line? For example, should General Foods add a new line of cereal; should it stop making Kix? Should the firm add (drop) a new division? For example, should Levi Strauss open a new division/plant in China? Should the firm sell a product as is or should the firm process the product further? For example, should Exxon sell its crude oil as crude oil or process it further into gasoline and other chemicals? Should the firm buy an input that it currently makes? For example, should Chrysler continue to make gas caps for its cars or should it “outsource” the manufacture of gas caps to a separate company? Should the firm drop a service department and contract with an outside company for the services? For example, should Purdue stop hiring its own cleaning people and contract with an outside company to provide janitorial services? Should the firm accept (reject) a special order? For example, should Ford accept a special order from Hertz for a large number of stripped down Escorts. page 6 In the real world, these decisions are complicated because choices: may have an impact on the firm for many years into the future. may affect the price a firm can charge for other products. may affect the actions of the firm’s competitors, and, in turn, affect the firm’s sales price or volume. may have moral consequences. To keep the problems simple and to understand the basics of decision making: we will assume the firm only cares about its immediate cash profits and wants to make that choice that will maximize its cash profits, we will ignore all factors not explicitly listed in our simple problems, and we will ignore the time value of money
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page 7 II. Cost terms for decision making
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201-Wk9&10-Decision Making-S'12 (STUD) - Mgmt 201...

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