BU467 Lecture Notes - Lecture 8: Insourcing, Carrying Cost, Sunk Costs
Document Summary
Chapter 7 decision making and relevant information. It differs among the alternative courses of action: relevant costs expected future costs, relevant revenues expected future revenues. Features of relevant information: past (historical) costs may be helpful as a basis for making predictions. Expected future revenues and expected future costs that do not differ among alternatives are irrelevant and, he(cid:374)(cid:272)e (cid:272)a(cid:374) (cid:271)e eli(cid:373)i(cid:374)ated f(cid:396)o(cid:373) the a(cid:374)al(cid:455)sis. The ke(cid:455) (cid:395)uestio(cid:374) is al(cid:449)a(cid:455)s, (cid:862)what diffe(cid:396)e(cid:374)(cid:272)e (cid:449)ill a(cid:374) a(cid:272)tio(cid:374) (cid:373)ake? (cid:863: appropriate weight must be given to qualitative factors and quantitative nonfinancial factors. Incremental cost: the additional total cost incurred for an activity, differential cost, the difference in total cost between two alternatives. Incremental revenue: the additional total revenue from an activity, differential revenue, the difference in total revenue between two alternatives. Four steps in managing bottleneck operations: recognize that the bottleneck operation determines throughput contribution of the entire system.
