BU467 Chapter Notes - Chapter 4: Opportunity Cost
Document Summary
Strategic use of relevant information for decision making: identify and envision. Type of decision, alternatives, relevant quantitative and qualitative information: explore. Quantitative and qualitative analysis (cvp analysis, linear programming: prioritize. Organizational strategies, organizations values, core competencies, risk appetite, cost/benefit trade-offs. How will decision affect long term goals. Operating decisions: non-routine: keep or drop, insource or outsource, special orders, constrained resources, product emphasis (multiple resource constraints and multiple products) Managers need to separate relevant cash flows, to develop distinct cost functions for each product, product line, or segment. General rule: drop if, cm < relevant fc + opportunity cost: oc = potential cm forgone when resources are devoted to an existing product instead of to alternatives. Customer profitability: managers need to decide whether to keep, drop, or add individual customers or groups of customers, general rule: drop customer if customer cm < relevant fc + oc. Relevant fc could include: delivery costs, marketing costs,
