MA lecture 5 + workshop 4 Flashcards
tenta (17 cards)
What are relevant costs and revenues?
Costs and revenues that differ between alternative courses of action and affect future cash flows.
Why do relevant costs and revenues need to differ?
If certain costs and revenues do not differ, they cannot affect the relative favorability of one decision alternative over another.
What is emphasized in decision-making regarding costs?
Future cash flows.
Should you accept an outsourcing offer if it benefits profit?
Yes, if it increases operating profit.
What is a key consideration in keeping or dropping product lines?
Operating profit comparison between keeping and dropping the product.
What is the significance of avoidable fixed costs in decision-making?
Avoidable fixed costs influence the total operating profit when considering keeping or dropping a product.
What decision rule should managers follow when facing capacity constraints?
Maximize production of the product with the highest contribution margin per unit of the constraining resource.
What should be calculated for every resource available?
The contribution margin per unit of the constraining resource.
What are the two types of long-run pricing approaches?
- Market-based
- Cost-based
What is the difference between committed costs and incurred costs?
- Committed costs: costs that were planned to be spent
- Incurred costs: costs that were actually made
How does cost-based pricing work?
It is based on the firm’s costs to make products, with a mark-up identified based on selling prices.
What is a death spiral in pricing?
A situation where reducing prices leads to lower revenues and higher costs, perpetuating further price reductions.
What is the formula for contribution margin?
Contribution margin = price – variable cost.
Calculate the contribution margin per unit for crates if price is 20 and variable costs total 13, 2, and 1.
4 euro.
Calculate the contribution margin per unit for trunks if price is 30 and variable costs total 15, 3, and 2.
10 euro.
What is the contribution margin per machine hour for crates if CM is 4 and machine time needed is 2 hours?
2 euro.
What is the contribution margin per machine hour for trunks if CM is 10 and machine time needed is 4 hours?
2.50 euro.
