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Identify the alternatives qualitative qualitative

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Unformatted text preview: the Alternatives Qualitative Qualitative Considerations Considerations 4. Develop a Decision Model 5. Collect the Data 6. Make a Decision 14-5 The Decision-Making Process The Relevant Relevant Pertinent to a Pertinent to a decision problem. decision problem. 1. Clarify the Decision Problem 2. Specify the Criterion Accurate Accurate Information must Information must be precise. be precise. 3. Identify the Alternatives Timely Timely Available in time Available in time for a decision for a decision 5. Collect the Data 4. Develop a Decision Model 6. Make a Decision 14-6 Relevant Information Relevant Information is relevant to a decision problem when . . . 1. It has a bearing on the future, 1. It has a bearing on the future, 2.. It differs among competing alternatives. 2 It differs among competing alternatives. 14-7 Identifying Relevant Identifying Costs and Benefits Sunk costs Costs that have already been incurred. They do not affect any future cost and cannot be changed by any current or future action. Sunk costs are irrelevant to decisions. 14-8 Relevant Costs Relevant Worldwide Airways is thinking about replacing a three year old loader with a new, more efficient New loader loader. List price Annual operating expenses Expected life in years Old loader Original cost Remaining book value Disposal value now Annual variable expenses Remaining life in years $ 15,000 45,000 1 $ 100,000 25,000 5,000 80,000 1 14-9 Relevant Costs Relevant If we keep the old loader, we will have depreciation If we keep the old loader, we will have depreciation costs of $25,000. If we replace the old...
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