Short-term Decisions (2) Flashcards
Relevant cost of materials not in inventory but have to buy it?
Current replacement cost
Relevant cost of materials for in inventory => in continual use => if taken from inventory will be replaced?
Current replacement cost
Relevant cost of materials for in inventory => no other use => if taken from inventory won’t be replaced?
Current resale value
Relevant cost of materials for in inventory => scarce => if taken from inventory can’t replace it?
Opportunity cost
Relevant cost of labour force for spare capacity => additional work can be undertaken?
None
Relevant cost of labour force for full capacity => additional work cannot be undertaken => hire more staff?
Current rate of pay
Relevant cost of labour force for full capacity => additional work cannot be undertaken => cannot hire more staff?
Variable cost and lost contribution
What is the relevant cost of machinery?
Repair costs arising from use
Hire charges
Fall in resale value arising from use
What is the minimum price for a one-off decision?
Is its total relevant costs. This is the price at which the business would break even
A project with a positive return on a relevant cost basis?
Should be accepted
A project with a negative return on a relevant cost basis?
Should be rejected
What does in-house production provide?
Greater control over the work performed by will also use capacity which will give rise to opportunity costs
What needs to be considered in make or buy? (spare capacity)
How can spare capacity freed up by subcontracting be used more profitably
What needs to be considered in make or buy? (outside supplier)
Could the decision to use an outside supplier cause an industrial dispute
What needs to be considered in make or buy? (subcontractor)
Would subcontractor be reliable with delivery times and product quality
