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    Short Term Non Routine Decisions

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    Althon Jay
    The document discusses short-term non-routine decisions and relevant costing. It provides examples of short-term decisions like make or buy, accept or reject special orders, and continue or drop operations. It also defines relevant costs as the incremental or future costs related to alternative courses of action. The document then provides two examples - a make or buy decision for part X-24 and whether to accept or reject a special order - to illustrate how to apply relevant costing to make short-term operational decisions.

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    Short Term Non Routine Decisions

    Uploaded by

    Althon Jay
    118 views8 pages
    The document discusses short-term non-routine decisions and relevant costing. It provides examples of short-term decisions like make or buy, accept or reject special orders, and continue or drop operations. It also defines relevant costs as the incremental or future costs related to alternative courses of action. The document then provides two examples - a make or buy decision for part X-24 and whether to accept or reject a special order - to illustrate how to apply relevant costing to make short-term operational decisions.

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    The document discusses short-term non-routine decisions and relevant costing. It provides examples of short-term decisions like make or buy, accept or reject special orders, and continue or drop operations. It also defines relevant costs as the incremental or future costs related to alternative courses of action. The document then provides two examples - a make or buy decision for part X-24 and whether to accept or reject a special order - to illustrate how to apply relevant costing to make short-term operational decisions.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    118 views8 pages

    Short Term Non Routine Decisions

    Uploaded by

    Althon Jay
    The document discusses short-term non-routine decisions and relevant costing. It provides examples of short-term decisions like make or buy, accept or reject special orders, and continue or drop operations. It also defines relevant costs as the incremental or future costs related to alternative courses of action. The document then provides two examples - a make or buy decision for part X-24 and whether to accept or reject a special order - to illustrate how to apply relevant costing to make short-term operational decisions.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 8

    Decision Viewpoints

    Classification
     Strategic
     Tactical
     Operational
    Short-term Non-routine Decisions
    Short-term Non-routine
    Decisions
     Not covered by SOPs of organization which are
    normally codified in a manual.
     It has an effect on the profitability but have not
    visible or materially calculated impact on the
    long-term stability and strategy of an
    organization.
     Qualitative variables are also considered.
    Relevant Cost

     Cost used in making a decision.


     Two features: differential and future-oriented
     Differential (incremental cost) change from one
    alternative to another. Examples are direct
    materials, direct labor, variable overhead.
     Future costs referred to as planned cost,
    budgeted costs or projected costs. Future costs
    are yet to be incurred in upcoming activities.
    Application of Relevant Costing
    Short Term situations Decision guidelines
    Make or buy? Where can we save?
    Accept or reject a special If there is an incremental
    order? profit, accept!
    Drop or continue a division If the direct segment margin
    is positive, continue!
    Sell-as-is or process further If profitable, go ahead
    Continue operations or If sales are greater than
    temporary shutdown shut down point, continue
    Maximize or minimize bid Focus on the incremental
    price cost
    Optimization of scarce Prioritize product with
    resources higher CM
    Sell now or later If increases in sales is
    greater then sell now
    Scrap or rework Determine profitability
    Replace or retain old asset Check cash outflows
    1. Make or Buy
    Toblerone Corp. manufactures part X-24 for use in production. The cost per unit
    fro 10,000 units of part X-24 are as follows:
    Direct materials P 6.00
    Materials handling cost (20%) 1.20
    Direct labor 20.00
    Variable overhead 5.00
    Fixed overhead 11.00
    Ferrero Co. has offered to sell Toblerone 10,000 units for P40 per unit.
    If toblerone accepts the offer, P4 of the fixed overhead unit could be eliminated.
    The materials handling costs pertain to the cost of receiving and inspecting
    incoming materials which are not included in the overhead.
    If the part is outsourced, one-half of the facilities could be used to produce new
    products, Citrus, which is expected to generate a CM of P90,000 per year.
    Additionally, a savings of P15,000 is expected if the parts are pruchased
    outside.. Other half of the facility could be rented out for P60,000 /year.
    The outside supplier requires that an equipment be leased to meet the order of
    the company. The 80,000 rental cost will be charged to the company.
    2. Accept or Reject
    The manufacturing capacity of North Wind Corporation’s facilities is P50,000
    units of products a year. A summary of operating results for the year end
    December 31, 2008 is a s follows:

    Sales (38,000 units) 3,800,000 100


    Less; Variables costs/expenses 2,090,000 55
    CM 1,710,000 45
    Less;Fixed cost/expesnes 900,000
    Operating income 810,000

    A distributor company has offered to buy 12,000 units at 90 per unit during
    2009. Assume that all of the corporation’s costs would be at the same levels
    and rates in 2009 as to 2008.

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