Professional Documents
Culture Documents
Chapter 19
Information for tactical decisions
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Outline
The management accountants role in decision making Characteristics of relevant information Accept or reject a special order Make or buy a product Outsourcing decisions Add or delete a product or department Joint products: sell or process further Implications of ABC analysis for decisions Incentives for decision makers Pitfalls to avoid when using accounting data for decisions
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Long-term decisions
Tend to be more strategic in nature May involve increases or decreases in capacity-related resources More difficult to reverse and effects may extend over longer time periods
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(cont.)
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Quantitative or qualitative
Quantitative information can be expressed in numeric terms, such as dollars Qualitative information cannot be expressed easily in numerical terms
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Repetitive decisions
Made at regular or irregular intervals May draw on a large amount of historical data Relevant information is readily available
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Incremental costs
The additional costs that arise from choosing one course of action over another
(cont.)
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Unavoidable costs
Costs that will continue to be incurred no matter which decision alternative is chosen Irrelevant to the decision
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19-11
Strategic issues
Long-term strategic issues may include whether the decision to accept the special order will impact on the business reputation or relationships with existing customers
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19-12
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19-13
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19-14
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Outsourcing decisions
Outsourcing occurs when part of a manufacturing process, or another function normally undertaken within an organisation, is contracted to an outside business Tends to be a long-term decision rather than a tactical make or buy decision Difficult and costly to reverse
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19-17
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Split-off point
The stage in the production process when the joint products are identifiable as separate products
Joint cost
All manufacturing costs incurred in the production of joint products
19-20
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19-22
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19-23
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19-24
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19-25
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Summary
Tactical decisions do not require significant changes in capacity and can be changed if better opportunities arise Relevant information will include quantitative and qualitative information, as well as strategic issues In decision analysis, incremental revenues and costs are usually the focus, and in some cases so are avoidable costs Identifying whether there is spare capacity is important in special orders and make or buy decisions, as opportunity costs become relevant where there is no spare capacity
(cont.)
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Summary (cont.)
Adding or deleting a product/department involves consideration of avoidable and unavoidable costs Processing joint products further requires consideration of incremental revenue and costs ABC system may provide more accurate information than costs generated from conventional costing systems Management incentives can sometimes distort the collection and analysis of information in decisions Accounting data should be used carefully in decision analysis as it can be problematic
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