MA 9 Relevant info for short term decisions

Question 1

What is needed for info to be deemed relevant?

Answer 1

If a factor differs between alternatives, it is relevant

Question 2

Define differential income

Answer 2

Any income that can change as a result of a management decision

Question 3

Define opportunity cost

Answer 3

A benefit forgone when you choose one alternative over another

Question 4

Define some relevant qualitative information

Answer 4

Consistency with strategy
Risk associated with plan
Demand on management attention

Question 5

In what circumstances will a company benefit from outsourcing?

Answer 5

• a lack of productive or logistics capacity exists in the long run
• it is not a core competency that is outsourced, or another company excels at this
• there is a lack of supply of raw materials and/or labour
• cost as percentage of total manufactured is small

Question 6

When quantitatively speaking should a company outsource?

Answer 6

When incremental costs are higher than purchase price. Incremental costs are only costs that depend upon the product being purchased (that change with different scenarios)

Question 7

In special order decisions, quant speaking, when should a company accept the order? What else needs to be considered?

Answer 7

If the relevant costs are lower than the special order price, they should proceed. Excess capacity should be considered otherwise there is an opportunity cost.

Question 8

How to maximize utilization of constrained resources

Answer 8

Find CM per unit per the constrained resource, then rank