MGMT 1B Lecture Notes - Lecture 10: Accrual, Net Present Value, Cash Flow
Document Summary
Management has 2 choices: 1. ) can sell at split off 2. ) process further, then sell. Must consider: incremental costs (separable costs) and incremental income. If incremental costs > incremental income, then do not process further ex. ) *product c would not be worth it to process further. May take some plant capacity therefore do not take unless profitable. If have idle capacity- then may make sense to fill special order. Special order- usually sales price is less than normal sales price. If incremental revenue> incremental costs, then you should accept. Fixed costs are irrelevant because we would incur it no matter what. A company manufactures t- shirts and sells them for each. The company has been approached by the us olympic committee and asked to manufacture 20000 shirts. The us olympic committee is willing to pay per t-shirt. Fixed costs for the company are for factory rent.
