Non-Routine Operating Decisions Flashcards
Module 5
part of day-to-day operations and follow established protocols and procedures; they are typically low-risk and require minimal analysis.
Routine or operational decisions
Examples of Routine or operational decisions.
Ordering office supplies, scheduling meetings, or assigning work tasks to team members.
medium-term decisions that align with the overall organizational strategy; they require careful analysis and consideration of various factors.
Tactical decisions
Examples of Tactical decisions
Launching a new product line, revising marketing strategies, or adjusting pricing structures.
long-term decisions that shape the direction and vision of the organization; they have a significant impact on the overall success and growth of the company.
Strategic decisions
Strategic decisions sample
expanding into new markets, acquiring other companies, or diversifying products and services.
a choice made to deal with a non-repetitive, tactical situation. typically involve situations that fall outside of the normal operating procedures of a business.
Non-Routine Operating Decisions
sometimes referred to relevant costing, incremental costing or differential costing
Non-Routine Operating Decisions
those that will differ between different alternatives
Relevant Costs
present in one alternative but absent in whole or in part in another alternative.
Differential cost
can be eliminated in whole or in part when one alternative is chosen over another
Avoidable
contribution to income that is lost when one action is taken over the next best alternative course of action.
Opportunity
change from one alternative to another.
Differential or incremental
Examples of incremental costs
direct materials, direct labor, variable OH, variable expenses.
planned cost, budgeted cost, projected costs or estimated costs; costs that are yet to be incurred in the future.
Future oriented
______ or past costs or historical costs are not relevant
Sunk costs
the relevant costs of producing the product component are compared with the purchase price of buying it from an outside supplier; avoidable fixed costs and opportunity costs are considered depending on the case.
Make or Buy a Product Component
The relevant information is the difference between the variable manufacturing costs to produce the special order and expected revenues.
Accept or reject a special sales order
If other sales are affected, then the company would have to consider the ____ sales in making the decision
lost
If the company is operating at full capacity, the special order may be _____
rejected
A business segment or product line should be continued if revenues exceed its costs (positive segment margin).
Continue or drop a business segment
The basic decision rule is: Process further if the incremental revenue is from such processing exceeds the incremental costs.
Sell-as-is or Process Further
If continuing the operations will result to greater sales than the ______________ _________, it is better to continue operating.
shutdown point
the level of operations where the loss from continuing is equal to the loss from discontinuing.
Shutdown point
offering a particular amount of money for something when competing against other people to buy it.
Bidding
should not be less than the incremental costs.
Minimum bid price
refer to the highest possible benefit that may be derived from the best alternative use of capacity
Opportunity costs
when resources are limited resource optimization is about getting the most out of them.
Scarce Resources Optimization
it involves identifying, prioritizing, and utilizing resources in the most efficient and effective manner possible.
Scarce Resources Optimization
sales and production should be allocated to the product that gives the ________ profit per scarce resource.
Highest
if the scarce resource is ______ ________ _______, then the product that gives the highest contribution margin per direct labor hours should be produced
Direct labor hours
if the expected incremental sales is greater than the incremental cost of the of keeping the product, then ___ __ _______.
Sell it later
When replacing an asset, there will be an immediate ______ ________but there are possible savings from maintenance costs.
Cash Outflow
The _____ value of the old asset, if any, can also be a source of cash inflow.
Salvage
When products do not meet the standard specifications or are defective, the producer may sell them as_______ or may opt to rework or reprocess them to be sold later at a higher value.
Scrap
The profit from reworking should be compared with the profit of selling as scrap without regard to the _____ costs of producing the product.
Past
the point at which two different alternatives are equal
Indifference Point
whatever alternative is chosen, the outcomes will be the same
Indifference Point
this level or point is known as ___ ________ point and at this point total cost of two production methods is same.
Cost indifference
