Separate the decision making into two parts:
qualitative analysis
- long term
- short term
- do you have the excess capacity?
example: you can go to Harvard if you make a large donation. But do you have that excess capacity.
P, N, V, F and $ are the managerial variables. Also, opportunity costs.
Now we are discussing decisions based on qualitative analysis. make a go/no-go decision.
After you make a go decision, then you make a quantitative analysis.
- sorting between variable and fixed costs. variable: unit level and batch level. fixed costs: product level costs and facility costs.
variable level costs at unit level are multiplied by N, the number of units. batch level costs are multiplied by N/batch, the number of batches.
fixed costs: product costs - decide if they affect or don't affect and what proportion. facility costs, just determine if they affect or don't.
avoidable/unavoidable categorization is in quantitative analysis.
Special Orders
P is lower, but N is higher. V (both unit and batch) is avoidable, because by not taking the special order, you can avoid these costs.
P-old = $200
P-new = $130
unit = $50
batch = 20,000/1000 = $20
so it's ok.
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