2. decision making- process
defining the problem
identifying alternatives
determine relevant cost
& revenue data
evaluating the data
considering non cost factors
making decision
3. Special costs for decision making
relevant costs & irrelevant costs
sunk costs
differential costs
marginal costs
imputed costs
opportunity costs
replacement costs
out of pocket costs
future costs
conversion cost
4. special decision making areas
selling price decisions
make or buy decisions
sales mix decision
selecting suitable method
of production
plant shut down decisions
5. special decision making areas
selling price decisions
•Competition & depression
•Additional orders
•Utilizing spare capacity
•Export market
6. Selling at or below marginal cost
•to popularize new product
•eliminate competitors
•dispose perishables
•earning foreign Exchange
•to keep pm in operation
•prevent future loss of Orders
•helping other products making
profits
•Keeping employees Occupied
7. pricing in competition & depression
•may be priced below total cost
•under marginal costing it may be above mc
•production may continue
•for a short term only
8. additional orders exploring foreign markets
•under utilized capacity
•order below total cost but above mc
•export sales may result in additional costs
•additional cost be deducted from profits
•subsidy exemptions be deducted from cost
9. make or buy decisions
Other factors
Plant capacity
Mc + loss of contribution
•Outside price compared of displaced works
with marginal cost
•Outside if mc>op
Non cost factors
•Inside if mc<op Assurance of quality
Assurance of continuity
Assurance of maintaining price
11. Selection of a suitable method of production
new product
whether to go for machine or hand labour
ordinary or automatic machine
select -which gives largest contribution
12. plant shut down- not sufficient business
temporary suspension
permanent suspension
16. -application
•determining optimum level of production
•accepting a special order
•adding or dropping a product
•evaluating make or buy alternatives
•Introducing an additional shift