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Lecture Cost management: Measuring, monitoring, and motivating performance (3rd edition) – Chapter 4

Chapter 4 - Relevant information for decision making. In this chapter we will discuss: Identify and use relevant information in decision making, analyze the quantitative and qualitative information used in keep or drop decisions, analyze the quantitative and qualitative information used in outsourcing (make or buy) decisions, . | Lecture Cost management Measuring monitoring and motivating performance 3rd edition Chapter 4 COST MANAGEMENT Measuring Monitoring and Motivating Performance Third Canadian Edition ELDENBURG WOLCOTT CHEN COOK Chapter 4 Relevant Information for Decision Making Learning Objectives LO1 Identify and use relevant information in decision making LO2 Analyze the quantitative and qualitative information used in keep or drop decisions LO3 Analyze the quantitative and qualitative information used in outsourcing make or buy decisions LO4 Analyze the quantitative and qualitative information used in special order decisions LO5 Analyze the quantitative and qualitative information used in product emphasis and constrained resource decisions LO6 Describe factors that affect the quality of operating decisions LO1 Identify and use relevant information in decision making Process for Identifying and Analyzing Relevant Information Identify and Envision the Problem and Alternatives Identify Relevant Quantitative Information Quantitative information is numerical information that is available for addressing a problem Identify Relevant Qualitative Information Qualitative information are factors that are not valued in numerical terms Performing Quantitative and or Qualitative Analyses Prioritize Issues to Arrive at a Decision Operating Decisions Keep or drop Insource or outsource make or buy Special orders Constrained resources Product emphasis multiple resource constraints and multiple products LO2 Analyze the quantitative and qualitative information used in keep or drop decisions General Rule for Keep or Drop Decisions The decision rule is to drop if Contribution margin is less than Relevant fixed costs plus Opportunity cost General Rule for Keep or Drop Decisions Separate costs into fixed and variable components. Variable costs are often avoidable and therefore relevant to the decision whereas fixed costs usually include both avoidable and unavoidable Consider whether the cost is .