ACCT 001 Lecture Notes - Lecture 23: Opportunity Cost, Outsourcing, Sunk Costs
Document Summary
Special order decisions: short-run pricing decisions where managements must decide which sales price is appropriate when customers place orders that are different from those placed in the regular course of business. Affected by whether company has excess production capacity, and will most likely not be excepted if not. In order to maximise profit, special order price must simply be higher than the additional variable costs. The qualitative factors must be considered: basis of expected excess capacity, may turn away customers who will otherwise pay full fare (opportunity cost), impacts of selling product/service at a discount. Make-or-buy decisions: short-term decision to outsource labour or to purchase components used in manufacturing from other company rather than make internally. Choice to outsource employees becoming demoralised about losing jobs quality problems, strikes or operational slowdowns. Vertical integration is accomplished when a company is involved in multiple steps of value chain (initial research and development, manufacture, marketing, etc. )