decision-making. learning objectives the scope of decision-making the seven steps of the...
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Decision-Making Decision-Making
learning objectives
the scope of decision-making
the seven steps of the decision-making process
relevant costs
examples of practical areas of decision-making
marginal costing and shutdown or continuation decisions
Session Summary (1) Session Summary (1)
make versus buy
product mix decisions and limiting factors
sales pricing
profit volume (PV) chart and contribution curve profit volume (PV) chart and contribution curve band
decision trees
example of a decision tree
Session Summary (2) Session Summary (2)
explain the scope and importance of decision-makingto an organisation
outline the decision-making process
explain the significance of the concept of relevant costs
apply marginal costing techniques to decision-making
Learning Objectives (1) Learning Objectives (1)
evaluate shut-down or continuation decisions
critically compare make or buy alternatives
consider the problem of product mix, scarce resourcesand limiting factors
consider the wide range of sales pricing options
use a decision tree to determine expected values of alternative outcomes
Learning Objectives (2) Learning Objectives (2)
The Scope of Decision-Making
The Scope of Decision-Making
The Seven Steps of the Decision-Making
Process
The Seven Steps of the Decision-Making
Process
the decision-making process includes
identification of relevant costs, and starts
with the identification of objectives
following the implementation of decisions,
the process ends with the comparison of
actual results with expected outcomes
relevant costs, or incremental or
differential costs, arise as direct
consequence of a decision, which may differ
between alternative options
Relevant Costs (1) Relevant Costs (1)
Costs that are generally relevant
materials costs
differential costs
opportunity costs
variable costs
Relevant Costs (2) Relevant Costs (2)
Costs that are generally not relevant
capital expenditure already made or committed
fixed costs
depreciation
sunk costs
committed costs
notional costs
Relevant Costs (3) Relevant Costs (3)
Examples of Practical Areas of Decision-
Making
Examples of Practical Areas of Decision-
Making
marginal costing may be used to assist in shutdown or continuation decisions
a shut-down decision that is based on absorption costing may not be a good decision if a contribution is beingmade towards covering fixed costs
Marginal Costing and Shut-down or
Continuation Decisions
Marginal Costing and Shut-down or
Continuation Decisions
make versus buy decisions involve
consideration of a wider range of factors
than simply the differences in the basic
cost, for example:
cost price sensitivity
accuracy of data
reliability of bought-in materials
supplier switching costs
delivery reliability
financial stability
cost price stability
opportunity costs
Make versus Buy Make versus Buy
organisations do not have access to unlimited supplies of resources, for example
labour hours
levels of labour skills
machine capacity
time
market demand
components and raw materials
cash
Product Mix Decisions and Limiting Factors
(1)
Product Mix Decisions and Limiting Factors
(1)
a limiting factor is the lack of any resource which limits the activity of the organisation product mix decisions are influenced by the scarcity of resources and the availability of limiting factors
Product Mix Decisions and Limiting Factors
(2)
Product Mix Decisions and Limiting Factors
(2)
sales pricing policy is just one of the four categories of decision included in the marketing mix of
price
product
place
promotion
Sales Pricing (1) Sales Pricing (1)
there is a variety of methods that may be used to determine selling prices, which may be included under the general headings of:
cost plus pricing
pricing based on demand and using market data
sales pricing policy is based on cost and market factors that influence demand for the product
Sales Pricing (2) Sales Pricing (2)
Profit Volume (PV) Chart and Contribution
Curve
Profit Volume (PV) Chart and Contribution
Curve
Profit Volume (PV) Chart and Contribution
Curve Band
Profit Volume (PV) Chart and Contribution
Curve Band
decision trees enable a sequence of interrelated decisions, and their expected outcomes, to be reported pictorially
Decision Trees
Decision Trees
Example of a Decision Tree
Example of a Decision Tree