short term decision making Flashcards
what are the short term decisions needed to be made
- relevant costs
-make or buy decisions
-outsourcing
-further processing decisions
-shut down decisions
what makes a cost RELEVANT
its a FUTURE, INCREMENTAL CASH FLOW
LOOK AT BOOK TO LEARN RELEVANCE FLOW CHART
what is a make or buy decision
to decide whether to make the good in house or buy it from outside, this is usually done on the basis of which is cheaper
what is outsourcing
utsourcing is the business practice of hiring a third party to perform services or create goods that were traditionally performed in-house by the company’s own employees and staff.
why would a business decide to outsource
specialist contractors can offer superior quality
outsourcing frees up employees and resources that can be used elsewhere
contractors usually have the capacity and flexibility to start production very quickly to meet sudden variations in demand
the cost of outsourcing is less as compared to producing the output internally
why may outsourcing from an external supplier be more reliable
the outsourcing company can be relied upon to meet:
the quantity required
quality required
delivering on time
price stability
what factors may a business consider to outsource activities:
the supplier has specialist skills that the business doesn’t
redundancy costs of laying off employees must be considered
in further processing what are joint products
they arise when manufacture of one product inevitably results in the manufacture of the other products
what is the split off point
the specific point at which individual products become identifiable is known as the split off point
what are joint costs
costs incurred before the split off point are called joint costs and must be shared between joint products produced
