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Unformatted text preview: Decision rule Only revenues Maximize revenue Only variable costs Minimize cost Costs and benefits within relevant range and below capacity. Maximize total CM Costs and benefits within relevant range and at capacity. Maximize unit CM per constraining factor(s) Example: Constrained is machine hours availability Prouduct A Product B Best choice Machine hours/unit 4 6 CM per unit $10 $12 B wrong choice! Why? CM per machine hour $2.50 $2.00 A Costs and benefits beyond range Maximize net decision benefit or Minimize net decision cost Example: Product A Product B Best choice Total CM $130,000 $120,000 A wrong choice! Why? Additional FC <$90,000> <$70,000> Net benefit $40,000 $50,000 B In summary: To make a decision: Eliminate costs and benefits that do not differ, in total, between alternatives. Base the decision on the remaining costs and benefits....
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