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# Use the five-step decision process to make decisions.

Information and the
Decision Process

# quantitative and qualitative analysis.

Five-Step Decision Process
Gather Information

• ## Step 1.

Step 2.
Make Predictions
Step 3.
Choose an Alternative
Step 4.
Implement the Decision
Feedback
Evaluate Performance

## Specific Predictions

Learning Objective 2

# Differentiate relevant from irrelevant costs and revenues in decision situations.

The Meaning of Relevance

# Differential costs

Learning Objective 3

# Distinguish between quantitative and qualitative factors in decisions.

Quantitative and Qualitative
Relevant Information

# Qualitative factors

One-Time-Only
Special Order Example

# with respect to units of output.

One-Time-Only
Special Order Example

# \$5.00

One-Time-Only
Special Order Example

# What is the full cost per towel?

One-Time-Only
Special Order Example

# No marketing costs will be incurred.

One-Time-Only
Special Order Example

# \$57,500 – \$42,500 = \$15,000

Learning Objective 4

# Beware of two potential problems in relevant-cost analysis.

Two Potential Problems in
Relevant-Cost Analysis
1
2

# output levels.

Outsourcing versus Insourcing

# Bismark would save \$3,000 by buying the part.

Learning Objective 5

# Explain the opportunity-cost concept and why it is used in decision making.

Opportunity Costs,
Outsourcing, and Constraints

# What should Bismark Co. do?

Opportunity Costs,
Outsourcing, and Constraints

# Part #3.

Opportunity Costs,
Outsourcing, and Constraints

# \$76,500

Opportunity Costs,
Outsourcing, and Constraints

# limited resource in its next-best alternative use.

Opportunity Costs,
Outsourcing, and Constraints

# to or greater than 150,000 = \$0.54.

Opportunity Costs,
Outsourcing, and Constraints

# \$40,500 × .06 = \$2,430

Opportunity Costs,
Outsourcing, and Constraints

# \$ 4,000.00

Opportunity Costs,
Outsourcing, and Constraints

# \$83,470

Learning Objective 6

# Know how to choose which products to produce when there are capacity constraints.

Product-Mix Decisions
Under Capacity Constraints

# Bismark Co. has 3,000 machine-hours available.

Product-Mix Decisions
Under Capacity Constraints

# Product #3: \$0.60 ÷ 2 = \$0.30

Learning Objective 7

# Discuss what managers must consider when adding or discontinuing customers and segments.

Profitability, Activity-Based
Costing, and Relevant Costs

# Fixed costs are allocated on the basis of revenues.

Profitability, Activity-Based
Costing, and Relevant Costs

# 1,000

Profitability, Activity-Based
Costing, and Relevant Costs

# 3,000

Profitability, Activity-Based
Costing, and Relevant Costs

# \$150,000 – \$15,000 = \$135,000

Profitability, Activity-Based
Costing, and Relevant Costs

# 3,000

Profitability, Activity-Based
Costing, and Relevant Costs

# – = \$25,000 decrease in operating income.

Profitability, Activity-Based
Costing, and Relevant Costs

# Should Mountain View Furniture lease to Perez?

Learning Objective 8

# Explain why the book value of equipment is irrelevant in equipment-replacement decisions.

Equipment-Replacement
Decisions Example

# Annual costs

Equipment-Replacement
Decisions Example

# advantage of the replacement machine.

Learning Objective 9

# Explain how conflicts can arise between the decision model used by a manager and the performance evaluation model used to evaluate the manager.

Decisions and
Performance Evaluation

# 80,000

Decisions and
Performance Evaluation

# manager’s performance is judged.

Decisions and
Performance Evaluation