ACCT 2102 Chapter Notes - Chapter 6: Shortage
2 May 2016
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Chapter 6- decision making in the short term: dealing with excess supply and. In the short term, capacity is fixed and non-controllable. In the long-term, we choose capacity levels based on expected future demand over many years. * reminder: capacity = maximum activity level that the company can sustain with the available resources (e. g. , plant, equipment, office space, skilled staff: demand changes frequently => temporary gaps between demand and (fixed) supply of capacity: What should we do if we have excess supply (excess capacity)? demand < supply. Try to put unused capacity to productive use. Reduce price or run a special promotion to boost demand. Make some components in-house, instead of buying them from outside suppliers ( make vs buy decision) What should we do if we have excess demand? demand > supply. Try to use available capacity in the most profitable way. Change product mix to focus on the most profitable products.
