Question

a. Identify the steps in management's decision-making process. Does management always follow these steps when making decisions?

b.  Select one of the decision types that involve incremental analysis, and discuss its relevant costs.

Answer 1

Steps in Decision Making Process

1.Relevant Costs are to be identified for decision making as these are the costs which are influenced by a decision

2.Whether the product or production makes a contribution

3.In the selection of alternative,additional fixed costs if any should be selected

4.The continuity of demand after expression and its impact on selling price are to be considered

5.Non-cost factors such as the need to keep the labour force intact and government attitufde are also to be taken into account

6.Opportunity Costs

7.The liquidity risks

8.The state of economy and its level of Inflation

9.Effect of new Technological breakthroughts

10.Effect of a decision on Employee morale,motivation

11.Long term Future Profitability

12.Companys Public Image and reaction of customers

These steps to be considered,these are not fixed steps and can be followed better methods if any

b.The Types of decisions that can be considered using Incremental Analysis

1.Introduction of a new product

2.Discontinuing a product ,suspending or closing down a segment of the business

3.Make or buy decisions

4.Lease or buy decisions

5.Equipment replacement decisions

6.Whether to process a product further or not etc.,.

Relevant Costs

1.All Variable Costs are relevant Costs

2.Fixed costs which may vary in comparision etc.,.