Bus 254 Chapter 13 Tutorial Notes

Bus 254 Chapter 13 Tutorial Notes - = expenses that will...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 13 Decision Making To make good decisions information must be relevant , accurate , and timely Sunk Cost cost already incurred (in the past) Differential Cost under 2 alternatives, the costs that are different Opportunity Cost potential benefit given up by choosing 1 decision over another We will focus on differential and opportunity cost Analysis of Special Decisions Accept or Reject a Special Offer Offered price – VC (all relevant to the offer, the differential costs) = CM you would get from the offer CM – Opportunity cost = gain accept offer CM – Opportunity cost = loss reject offer Opportunity cost arises if company doesn’t have excess capacity (similar to the concept of transfer prices) Make or Buy Decision Find out the relevant costs (fixed and variable) of making the product o This includes the opportunity costs Compared to cost of buying the product Cost to make < cost to buy make Cost to buy < cost to make buy Add or Eliminate Service or Product Line Unavoidable expenses
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: = expenses that will continue if product line is dropped Avoidable expenses = those that disappear after product line is dropped o Usually all VC are avoidable Take out the unavoidable expenses o Then re-calculate the profit If positive dont eliminate If negative drop product line Joint Products: Sell or Process Further Split-off point when joint products are identifiable as separate products o Should product be sold at split off point or process further? Selling value after further processing- Selling value at split off point Incremental revenue from further processing Less: incremental processing cost Net benefit from further processing Positive Negative Process further Sell at split off point Theory of Constraint Need to find constraint (bottleneck) in production and relax it o Ways to relax Outsource Overtime work Train employees and shift them to constraint Eliminate non-value added activity Common...
View Full Document

This note was uploaded on 03/16/2012 for the course BUS 254 taught by Professor Favere-marchesi during the Spring '10 term at Simon Fraser.

Page1 / 2

Bus 254 Chapter 13 Tutorial Notes - = expenses that will...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online