10. Short-term decision making

Question 1

What is the minimum price for a one off order?

Answer 1

The total relevant costs

Question 2

What costs should an organisation consider when making a make or buy decision?

Answer 2

The avoidable costs

Question 3

What costs should an organisation consider when making a discontinuation decision?

Answer 3

Only relevant costs and revenues

Question 4

What 2 non cost items should organisations consider when making a discontinuation decision?

Answer 4

If there are interdependencies with other profitable products, or if there will be a loss of economies of scale

Question 5

What are joint products?

Answer 5

Two or more products produced by the same process and separated in processing, each having a sufficiently high saleable value to merit recognition as a main product

Question 6

What is a by product?

Answer 6

Output of some value produced incidentally in manufactory something else

Question 7

What are joint costs?

Answer 7

Common costs incurred for joint products up until the point of separation

Question 8

What are the 3 possible bases for splitting out joint costs?

Answer 8

Physical quantities, ultimate sales value of final product less further processing costs, sales value at split off point

Question 9

What should be considered when deciding whether to continue to process a product at separation?

Answer 9

NOT allocation of joint costs, but

1. Selling price after further processing
2. Selling price at separation
3. Additional further processing costs involved
4. Losses involved in processing further
5. Quantities before and after processing

Question 10

What else needs to be considered when making short term decisions in order to be ethical?

Answer 10

Impact on stakeholders and the local community