Chapter 8 ACC 221

What are the steps for decision-making model?

Step 1: Identify the problem

Step 2: Find the solutions

Step 3: Identify costs and benefits for each feasible alternative

Step 4: Estimate cost and benefits for each feasible alternative

Step 5: Assess qualitative factors

Step 6: Make the decisions with the best net benefit

In Short-Run Decision making what are the two most important things?

Capacity, Cover Variable Cost

Relevant costs possess two characteristics:

Future Items, Differ Across Alternatives

What is opportunity cost?

Benefits sacrificed or foregone when one alternative is chosen over another

What are sunk cost?

Costs that can’t be affected by any future action, depreciation

What are the three step of making a tactical decision?

1. Make or buy a component

2. Accept a special order at less than usual price

3. Keep or drop a segment or product or service line

4. Process joint product or service line

What is Make-Or-Buy?

The decisions between choosing to make a product or purchase it from outside supplier

What is Keep-or-Drop Decisions?

Identify relevant information of the business segment

What are joint products?

Have common processes and costs as separately identifiable products