Powerpoint TemplatesPage 1

DECISION MAKING,ALL STRATEGIC DECISIONS REQUIREMENTS

GROUP 7

Presented by-Gaurav Khatri

Devendran S.PSiddharth Tripathi

Vandana Madhuri SinghTimsi Luthra

Pushpam Shree

Powerpoint TemplatesPage 2

LEARNING OBJECTIVES

Decide whether to make or buy certain parts or products Choose whether to add or delete a product line using relevant

information. Compute the optimal product mix when production is

constrained by a scarce resource. Decide whether a joint product should be processed beyond

the split-off point. Decide whether to keep or replace equipment Identify irrelevant and mis-specified costs.

Powerpoint TemplatesPage 3

OPPORTUNITY, OUTLAY AND DIFFERENTIAL COSTS AND ANALYSIS

Powerpoint TemplatesPage 4

OPPORTUNITY COST

It applies to a resource that a company already owns or that it has already committed to purchase, the maximum available contribution to profit forgone by using such a resource for a particular purpose.

Powerpoint TemplatesPage 5

OUTLAY COST

The cost that requires a future cash disbursement. These costs include cost for items such as material and labor.

Powerpoint TemplatesPage 6

DIFFERENTIAL COSTS

The difference in the total cost between two alternatives.

Example- Decision regarding the purchase of a machinery out of two. The differential cost is the difference in the prices paid plus the costs of operating the machines.

Powerpoint TemplatesPage 7

INCREMENTAL ANALYSIS

An analysis of the incremental costs and benefits of a proposed alternative compared with a given alternative.

When multiples alternatives are available, the decisions are taken with the help of evaluation of the incremental costs and benefits of the alternative against other alternatives.

Powerpoint TemplatesPage 8

MAKE OR BUY DECISIONS

A basic make or buy question is whether a company should make its own parts that it will use in its final products or buy the parts from vendors. Sometimes the decisions are based on qualitative factors and sometimes on quantitative factors. It all depends upon the situation.

Powerpoint TemplatesPage 9

In terms of quantitative factors, a key factor is whether there are idle facilities. Many manufacturing firms make parts only when they cannot use their facilities to better advantage. Also, identifying and accurately measuring the additional costs for making the part is important.

Powerpoint TemplatesPage 10

DELETION OR ADDITION OF PRODUCTS,

SERVICES OR DEPARTMENTS

Powerpoint TemplatesPage 11

AVOIDABLE AND UNAVOIDABLE COSTS

(FIXED EXPENSES)

Avoidable costs: Those costs which will not continue if an ongoing operation is changed or deleted- are relevant.

Unavoidable costs: Costs that will continue even if a company discontinues an operation.

Powerpoint TemplatesPage 12

It is important to remember that non-financial information can influence decisions to add or delete products or departments. Any negative impacts on employees, customers or communities could create future financial problems for the company that are much larger than short-term cost savings from discontinuing a product or a plant.

Powerpoint TemplatesPage 13

OPTIMAL USE OF LIMITED RESOURCES

(PRODUCT-MIX DECISIONS)

A product mix decision requires a focus on each product’s contribution margin and its use of capacity.

Powerpoint TemplatesPage 14

JOINT PRODUCTS

When two or more manufactured products Have relatively significant sales volumes,

and Are not separately identifiable as individual

products until their split off point.

Manufactures that have joint products frequently face the decision to sell or to process further.

Powerpoint TemplatesPage 15

SPLIT –OFF POINT

That juncture of manufacturing where the joint products become individually identifiable. Any costs beyond that stage are separable costs because they are not part of the joint process.

Powerpoint TemplatesPage 16

KEEP OR REPLACING EQUIPMENT

An important aspect of such decision is that the book value of the old equipment is not a relevant consideration in deciding whether to purchase a replacement.

Powerpoint TemplatesPage 17

Before making the decision, we must consider the relevance of four commonly encountered items:

Book value of old equipment Disposal value of old equipment Gain or loss on disposal Cost of new equipment

Powerpoint TemplatesPage 18

IDENTIFY IRRELEVANT OR MISSPECIFIED COSTS

In the decision to dispose of obsolete inventory, the original cost of inventory is irrelevant because there is no way to restore the resources used to buy or produce the inventory.

Units fixed costs can be misleading because of the differences in the assumed level of volume on which they are based.

Powerpoint TemplatesPage 19

THANK YOU