Exam 2 (Quiz 6) - Chapter 25 Flashcards
List:
Steps in the Decision Making Process
- Clarify the decision problem
- Specify the criterion
- Identify the alternatives
- Develop the decision model
- Collect the data
- Make a decision
Define:
Relevant (in decision making process)
Pertinent to a decision problem
Define:
Accurate (in decision making process)
Information must be precise
Define:
Timely (in decision making process)
Available in time for a decision
Answer:
Relevant information has ___(a)___ and it ___(b)___
a. bearing on the future
b. differs among alternatives
Example:
Relevant information for decision making has bearing on the future
We cannot decide what to have for breakfast yesterday
Example:
Relevant information for decision making differs among alternatives
If deciding between 2 items that are the same price, the price is not relevant to the decision
Define:
Special Order
When a customer requests a one time order at a reduced sale price
List:
Considerations for Accepting Special Orders
- Does the company have the excess capacity available to fill the order?
- Will reduced sales price be enough to cover incremental costs (variable and additional fixed costs)
- Will it affect regular sales in the long run?
Define:
Incremental Costs with Special Orders
Variable costs and any additional fixed costs
Equation:
Incremental Profit from Special Order
Total Sales Revenue
-
Total Variable Costs
-
Additional fixed costs
Equation:
Total Variable Cost for Special Order
Variable Cost / Unit
*
Special Order Qty
Answer:
The decision rule for accepting a special order say that if there is ___(a)___ profit you should accept the order and if there is ___(b)___ profit you should reject the order
a. positive incremental
b. negative incremental
List:
Considerations for Dropping Products, Departments, or Territories
- Does it provide a positive contribution margin?
- Will fixed costs continue if it is dropped?
- Will dropping it affect sales of company’s other products?
- What could company do with freed manufacturing capital?
Answer:
If the fixed costs will continue if the company drops a product, then the fixed costs are ___(a)___
a. irrelevant
Equation:
Contribution Margin
Sales Revenue
-
Variable Cost
Answer:
The decision rule for dropping a product/segment says that if the ___(a)___ you do not drop it, but if the ___(b)___ you do drop it
a. lost revenues exceed total cost savings
b. lost revenues are less than the total cost savings
Answer:
If the lost revenues from dropping a product exceed the total cost savings you should ___(a)___
a. not drop the product
Answer:
If the lost revenues are less than the total cost savings you should ___(a)___ the product
a. Drop the product
Answer:
The decision rule says that if the ___(a)___ you should outsource, and if the ___(b)___ you should not outsource a product
a. incremental costs of making exceed incremental costs to outsource
b. incremental costs of making are less than the incremental costs to outsource
List:
Benefits of Outsourcing
- Save Cost (ex - competitive bidding system)
2. Focus on core competencies (ex - keep designing, outsource production)
List:
Costs of Outsourcing
- Dependence on suppliers increases
2. Uncertain about long-run benefits and costs
Answer:
What do managers do to minimize the costs/risks of outsourcing?
Generally enter into long-run contracts specifying costs, quality, and delivery schedules with suppliers
Answer:
The decision rule says that if ___(a)___ you should process further and if ___(b)___ you should sell as is
a. extra revenue from processing further exceeds extra cost
b. extra revenue from processing further is less than extra cost
