Relevant Information for Special Decisions.pptVIP

Relevant Information for Special Decisions Chapter 4 Relevant Information Relevant Revenues and Costs Cost Avoidance is Related to a Cost Hierarchy Relevance is an Independent Concept The management of Better Bakery is trying to decide whether the production of cakes or pies would be more profitable. Relevance is an Independent Concept The cakes will be distributed under a nationally advertised label and requires a franchise fee. The pies will be sold under Better Bakery’s own name and additional advertising is necessary. For either alternative we will hire a production supervisor at a cost of $25,000. Which costs are relevant? Relevance is an Independent Concept Relevance is an Independent Concept Relevance is an Independent Concept Opportunity Costs are Relevant Quantitative Versus Qualitative Characteristics of Decision Making Quantatative Characteristics Numbers in decision making subject to mathematical manipulation, such as the dollar amounts of revenues and expenses. Relevant Information and Decision Making Five types of special decisions are frequently encountered in business practices: Special order Outsourcing Segment elimination Asset replacement Scarce resource allocation Special Order Decisions Stoerner Office Products manufactures copy machines, computers, and printers. The company expects to sell 2,000 printers next year, and will manufacture the printers in 10 batches of 200 printers per batch. The accountants at Stoerner provide us with the cost information on the next slide. Special Order Decisions Each printer sells for $360. Stoerner receives a special order for 200 printers at a price of $250 each. The company has excess capacity and could manufacture the additional printers with no change in its other activities. Should Stoerner accept the order? Special Order Decisions Relevance and the Decision Context Look what would happen if Stoerner reduces its selling price to existing customers. Relevance and the Decision Context What do you