Non-Routine Short Term Decision

Question 1

is the process of choosing what to do to achieve an objective.

Answer 1

DECISION MAKING

Question 2

DECISION MAKING PROCESS

Answer 2

1. Describe the Problem
2. Evaluate Potential Solutions
3. Collect Data
4. Evaluate the Option
5. Choose an Option
6. Take Action
7. Evaluate the Impact

Question 3

Expenses that change due to a specific business decision.

Answer 3

RELEVANT COSTS

Question 4

Can be added expenses, or removed expenses, depending on the scenario.

Answer 4

RELEVANT COSTS

Question 5

Are the cost that is affected by the decision that the company/manager takes.

Answer 5

RELEVANT COSTS

Question 6

Expenses that already exists, regardless of the decision at hand.

Answer 6

IRRELEVANT COSTS

Question 7

Will not change based on the business decision.

Answer 7

IRRELEVANT COSTS

Question 8

Are the cost that is NOT affected by the decision that the company/manager takes.

Answer 8

IRRELEVANT COSTS

Question 9

TYPES OF RELEVANT COSTS

Answer 9

1. Future Cash Flow
2. Avoidable Costs
3. Opportunity Costs
4. Incremental Costs

Question 10

TYPES OF IRRELEVANT COSTS

Answer 10

1. Sunk Costs
2. Committed Costs
3. Non-Cash Expense
4. General Overheads

Question 11

cash expense that will be incurred in the future as the result of a decision.

Answer 11

Future Cash Flow

Question 12

are relevant to a decision that can be avoided if the decision is not implemented.

Answer 12

Avoidable Costs

Question 13

cash inflow that will be sacrificed as a result of a particular management decision.

Answer 13

Opportunity Costs

Question 14

total cost incurred due to an additional unit of product being produced.

Answer 14

Incremental Costs

Question 15

is expenditure which has already been incurred in the past.

Answer 15

Sunk Costs

Question 16

is a payment obligation that you can’t recover.

Answer 16

Committed Costs

Question 17

such as depreciation are not relevant because they do not affect the cash flows of the business.

Answer 17

Non-Cash Expenses

Question 18

are not affected by the decisions under consideration should be ignored.

Answer 18

General Overheads

Question 19

gastos na hindi direktang naangkop sa produksiyon ng mga produkto o serbisyo ng isang kumpanya

Answer 19

General Overheads Costs

Question 20

should not be considered because it will be incurred regardless of our decision.

Answer 20

Unavoidable fixed costs

Question 21

We may sometimes be facing a deal on whether to accept a special order of a particular product. Remember that in cases such as this, the offer should only be accepted if the incremental revenues to be earned are greater than the incremental costs to be incurred or simply if we are going to have an additional profit form the offer, then accept it.

Answer 21

Accept or Reject Special Order

Question 22

Another non-routine decision that we probably might encounter is whether we have to continue producing a certain item or just have it outsourced. In this situation, we need to see which option would minimize costs more.

Answer 22

Make or Buy

Question 23

Sometimes, we may have to deal with underperforming segments. We monitor their performance, we do necessary corrective actions, but still they produce losses for company. But just because they incur losses does not always mean that we have to drop them immediately. We have to take a look at its performance more closely. When we are face with a decision to see if we should drop a non-performing segment, we have to know if we will be better off without it or not.

Answer 23

Drop or Retain a Segment

Question 24

Another situation that we might encounter is the decision to either sell a product as is or have it processed further. Of course, higher sales will be earned from a product if it is processed further. But we have to consider also the costs of processing it further. Given that, if the incremental revenue to be earned from the product is greater than the incremental costs of producing it, then we should process it further.

Answer 24

Sell as is or Process Further

Question 25

Sometimes we are faced with a good problem. For example, the demand for our products is so high that we have to allocate our resources to such products. When faced with such cases, we must prioritize that product that generates the highest contribution margin per unit of scarce resource that we are allocating.

Answer 25

Limited Resources

Question 26

5 COSTS in DECISION MAKING

Answer 26

1. Make or Buy
2. Accept or Reject
3. Drop or Retain
4. Sell as is or Process Further
5. Limited Resources