Decision Making - Cost Accounting
Decisions Involving Alternative Choices
Structure:
13.1 Introduction
Objectives
13.2 Decision Making
13.3 Types of Costs
13.4 Types of Choices Decisions
13.5 Make or Buy Decisions
13.6 Addition / Discontinuance of a Product line
13.7 Sell or Process Further
13.8 Operate or Shut down
13.9 Exploring New Markets
13.10 Maintaining a desired level of profit
13.11 Summary
13.12 Terminal Questions
13.13 Answers to SAQs and TQs
13.1 Introduction
In the previous unit we learnt about Marginal Costing. Marginal costing is the ascertainment of marginal cost and of the effect on profit of changes in volume by differentiating between fixed costs and variable costs. Marginal cost is the amount at any given volume of output by which aggregate costs are changed if the volume of output is increased or decreased by one unit. Marginal costing is a very useful tool for management because of its applications. It is used in providing assistance to the management in vital decision-making both short term and long term. Differential analysis is the process of estimating the consequences of alternative actions that a decision maker may take. It is used both for short term and long term decisions. Short term decisions relates to fixing price for the product, selecting a suitable product mix, diversification of the product etc while long term deals with capital budgeting decisions.
Objectives
After studying this unit, you should be able to:
· Explain the steps involved in decision making process
· Know various types of decision choices
· Analyze and interpret various decision choices
13.2 Decision Making
Decision making is the process of evaluating two or more alternatives leading to a final choice known as alternative choice decisions. Decision making is closely associated with planning for the future and is directed towards a specific objective or goal. Decision model contains the following decision-making steps or elements:
1. Identify and define the problem
2.
Structure:
13.1 Introduction
Objectives
13.2 Decision Making
13.3 Types of Costs
13.4 Types of Choices Decisions
13.5 Make or Buy Decisions
13.6 Addition / Discontinuance of a Product line
13.7 Sell or Process Further
13.8 Operate or Shut down
13.9 Exploring New Markets
13.10 Maintaining a desired level of profit
13.11 Summary
13.12 Terminal Questions
13.13 Answers to SAQs and TQs
13.1 Introduction
In the previous unit we learnt about Marginal Costing. Marginal costing is the ascertainment of marginal cost and of the effect on profit of changes in volume by differentiating between fixed costs and variable costs. Marginal cost is the amount at any given volume of output by which aggregate costs are changed if the volume of output is increased or decreased by one unit. Marginal costing is a very useful tool for management because of its applications. It is used in providing assistance to the management in vital decision-making both short term and long term. Differential analysis is the process of estimating the consequences of alternative actions that a decision maker may take. It is used both for short term and long term decisions. Short term decisions relates to fixing price for the product, selecting a suitable product mix, diversification of the product etc while long term deals with capital budgeting decisions.
Objectives
After studying this unit, you should be able to:
· Explain the steps involved in decision making process
· Know various types of decision choices
· Analyze and interpret various decision choices
13.2 Decision Making
Decision making is the process of evaluating two or more alternatives leading to a final choice known as alternative choice decisions. Decision making is closely associated with planning for the future and is directed towards a specific objective or goal. Decision model contains the following decision-making steps or elements:
1. Identify and define the problem
2.