Decision Making Flashcards

1
Q

Relevant Costs

A

future costs and revenues incremental cash flows

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2
Q

Non Relevant Costs

A

sunk costs committed costs non cash flow costs i.e. depreciation, NBVs

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3
Q

Opportunity Cost

A

The best alternative that is forgone in taking the decision

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4
Q

Relevant Costs of Materials

A
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5
Q

Relevant Cost of Labour

A
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6
Q

Relevant Cost of Non Current Assets

A
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7
Q

Limiting Factor

A

is any factor which is in scare supply and stops the organisation from expanding its activities further

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8
Q

Decisions Involving a Single Limiting Factor

A

rule stated as:

maximising the contribution per unit of limiting factor

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9
Q

Contribution Per Unit of Limiting Factor Formula

A

Contribution per unit

/

units of limiting factor required per unit

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10
Q

Optimal Production Plan

A

1 establish the single limiting factor

2 calc contribution per unit

3 calc contribution per unit of limiting factor

4 rank the products on cont. per unit of limiting factor

5 allocate limiting factor to the highest ranking product

6 Once demand for the highest ranking product is satisified move on to the next highest and so on until scarce resource is used up

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11
Q

Make or Buy Decisions

Spare Capacity

A

variable cost of internal manufacture

+

any fixed costs directly related to the product

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12
Q

Make or Buy Decisions

No Spare Capacity

A

variable cost of internal manufacture

+

any fixed costs directly related to product

+

the opportunity cost of internal manufacture i.e. lost contribution from another product

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