Chapter 7 & 8: Management’s Decision-Making Process

Chapter 7 & 8: Management’s Decision-Making Process Chapter 7
1 What steps are frequently involved in management’s decision-making process?
These steps are as follows
* Identification of the problem and assigning responsibilities.
* Determining and evaluating plausible courses of action.
* Making a decision.
* Reviewing results of the decision.
5. What data are relevant in deciding whether to accept an order at a special price?
The incremental revenues which are supposed to be obtained compared to incremental costs of filling the special order.
7. Define the term “opportunity cost.” How may this cost be relevant in a make-or-buy decision?
The opportunity cost is the foregone cost. The potential benefit of an opportunity cost is gotten by following an alternative course of action. It is important in making decisions on what a person is supposed to buy.
10. How are allocated joint costs treated when making a sell-or-process-further decision?
Joint costs are not relevant to a sell-or-process further decision because they are sunk costs and cannot adjust whether the decision is to sell the existing product or process it further. These joint costs are ignored when such a decision is taken.
Chapter 8
1. What are the two types of pricing environments for sales to external parties?
The first type of pricing environment is where the company is the price taker whereby the company does not set the price but the price is set by a competitive market. The second type of environment is where the company sets the price.
3. What is the basic equation to determine the target selling price in cost-plus pricing?
Target selling price = Cost + (Markup percentage X Cost)
5. What is the basic equation for the markup percentage?
Markup percentage = Desired ROI per unit / Total unit cost