BE Analysis and Decision-Making

1. BE Analysis and Decision-Making Marginal Analysis: Using contribution margin to make decisions

2. In the short term, fixed costs cannot be altered, and are therefore not properly a part of the decision-making process. Only costs that do change, and differ between investment decisions, should be considered.

3. Marginal AnalysisMarginal Analysis looks only at costs (and revenues) that will change and differ between alternative investment possibilities. Marginal Analysis is commonly applied to

4. Special Contracts: (example)

6. Example (cont.): Other Factors to Consider

7. Most Efficient Use of Scarce Resources

8. Best when the scarce resource (labor) limits volume Best when the market limits volume

10. Activity 9.11 Solution

13. Make-or-Buy Decisions • Often, manufacturing companies decide with to vertically integrate – i.e. make inputs themselves – or subcontract out (“outsource”) the supply of certain inputs.

14. * Notice that the issue is NOT whether a supplier is “making profit” off of you; but, whether you can do it better or cheaper than your supplier!

17. Close or Continuation Decisions Should a product, division or department be closed? Or should it be allowed to continue operating at a loss?

21. Self-Assessment Question 9.1 Answer

22. Self-Assessment Question 9.1 Answer (cont.)

24. Chapter Summary (cont.)