BUS-A 202 Study Guide - Midterm Guide: Income Statement, Activity-Based Costing, Financial Statement
Document Summary
In the short term, companies deal with gaps between demand and supply. Companies anticipate the imbalance and look to mitigate the peaks and valets. These gaps exist because capacity is fixed in the short term but demand may exceed or fall short of available capacity. Capacity: the maximum volume of activity that a company can sustain with the available resources. Short term decisions usually fall into two categories: valleys- decisions dealing with excess capacity (demand is less than capacity, peaks- decisions dealing with excess demand (demand is greater than capacity) If we have excess capacity, how would we mitigate it: special orders, make more components in-house, price discounts. If we have excess demand, how would we mitigate it: temporary help, outsource process, raise prices. When considering special orders, companies should consider the additional revenue the special order would generate and the relevant costs of filling the order, as well as other considerations.
