Chp.12 Relevant Costs for decision making

Profitiabily Index

=Contribution margin per unit/ quanity of constrained resources required per unit

Relevant Cost

A cost that differs among the alternatives in a particular decision and will be incurred in the future.

Sell or process further decision

A decision as to whether a joint prodict should be sold at the split-off point or processed futher and sold at a later time in a different form

Make or buy decision

A decision as to whether an item should be produced internally or purchased from an outside supplier

Constraint

A limitation under which a company must operate that restricts the companys ability to satisy demand for its products or services

Theory of Constraints

A management apporoach that emphasizes the importance of managing constraints

Joint product costs

Costs that are incurred up to the split-off point in producing joint products

Vertical Integration

Involvement by a single company in more than one of the steps in the value chain, from production of basic raw materials to the manufacture and distribution of a finished product

Special order

a one-time order that is not considered part of the company's normal ongoing business

Avoidable Costs

any cost that can be elimated by choosing one alternative over another in a decision making situation

Split- off Point

point in the manufactuing process where some or all of the joint products can be recognized as individual products

Joint products

two or more items that are produced from a common input