Short-term Decisions (3) Flashcards
What is a decision for an organisation wanting to produce items in-house but does not have sufficient capacity to produce everything because of a limiting factor?
Arrange internal productuin and external purchasing in a way that minimises total costs
When are total costs minimised?
if such units bought from subcontractor have lowest extra variable cost per unit of scarce resource saved by buying
What is outsourcing?
The use of external suppliers for finished products, components or services. This is known as contract manufacturing or subcontracting
Advantages of outsourcing?
Cost savings
Access to expertise
Releases capital
Frees up capacity
Disadvantages of outsourcing?
Loss of control
Impact on quality
How flexible, reliable is supplier
Potential loss of confidential information
Loss of in-house skills
Impact on employee’s morale
Examples of shutdown decisions?
A division, product or department of a business that appears to be loss making
What should shutdown decisions focus on?
Relevant costs rather than profitability under absorpotion costing
What does absorption costing fail to consider?
Whether overheads will change as a result of the decision
What do shutdown decisions focus on (variable)
Variable costs
What do shutdown decisions focus on (avoidance)
Avoidance costs
What do shutdown decisions focus on (direct)
Directly attributable costs if the closure is made
What do shutdown decisions focus on (T)
Timing
What could happen with a single process?
More than one product may be produced from a single process
Why does the cost of a process which creates more than one product need to be approtioned between the products needed?
Value inventory
Prepare financial accounts
Why does the cost of a process which creates more than one product not relevant when deciding whether to process any product further as?
Theya re sunk and arbitrarily apportuibed
