1 / 17

Cost Management and Decision Making

Cost Management and Decision Making. Chapter 13. Decision making process. Step 1: Goal setting Provides guidance Goals Tangible Quantifiable Target profit, market share, enrollment, etc. Decision making process. Step 2: Gather information Relevant information

saki
Download Presentation

Cost Management and Decision Making

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Cost Management and Decision Making Chapter 13

  2. Decision making process • Step 1: Goal setting • Provides guidance • Goals • Tangible • Quantifiable • Target profit, market share, enrollment, etc.

  3. Decision making process • Step 2: Gather information • Relevant information • Capable of influencing a decision • Differs among alternatives • Occurs now or in the future • Sunk costs are never relevant

  4. Decision making process • Tradeoffs • Qualitative vs. quantitative • Objective vs. subjective • Accuracy vs. timeliness • Quality vs. cost

  5. Decision making process • Step 3: Identify and evaluate alternatives • Stay as is or change? • Consider the domino effect • What other changes will this alternative necessitate?

  6. Decision making process • Costs and benefits of each • Qualitative vs. quantitative • Numbers may not tell the whole story • The past may be a guide • Prototype or pilot project may be appropriate

  7. Common decisions • Make or buy? • Retain or drop? • Keep or replace? • Accept or reject?

  8. Make Qualitative factors Control Worker morale Reputation Reduced risk Buy Qualitative factors Dependence Time and distance Greater risk Cultural differences Make or buy?

  9. Make or buy?

  10. Retain Profitable? Support other products, locations? Maintain image? Drop Revenue lost Costs avoided Shift to other products, locations Impact on remaining workers, community Retain or drop?

  11. Retain or drop?

  12. Keep Serviceability Operating costs Capacity Obsolescence Replace Cost Available financing Operating costs Capacity Useful life Market value of old asset Keep or replace?

  13. Keep or replace?

  14. Accept Does incremental revenue exceed incremental cost? Unit/batch Product/facility Impact on other products Impact on other customers Reject Not profitable Negative impact on current sales Discriminatory Negative impact on image Accept or reject?

  15. Accept or reject?

  16. Life cycle costing • At some point, all costs must be recovered • Previous examples only considered incremental costs • Life cycle costing considers all of the costs related to owning and using the asset • Costs are then charged to customers

  17. Life cycle costing • Ownership costs • Net cost consumed (cost – salvage value) • Opportunity cost or cost of capital • Ongoing fixed costs (insurance, taxes, etc.) • Operating costs • Utilities, repairs, maintenance, etc. related to using the asset

More Related