Slide 1Slide 2Short-Term Business DecisionsLearning Objective 1How Managers Make DecisionsRelevant and Irrelevant InformationRelevant Nonfinancial InformationSix Short-Term Special DecisionsKeys to Making Short-Term Special DecisionsS8-1Learning Objective 2Special Order ConsiderationsSpecial Sales OrderSlide 14Slide 15Incremental Analysis of Special Sales OrderE8-16ASlide 18Learning Objective 3Regular Pricing ConsiderationsPrice-Taker vs Price-SetterTarget CostingSlide 23Cut Fixed CostsOther StrategiesCost-Plus PricingCalculating Cost-Plus PricePricing DecisionsE8-18ASlide 30Learning Objective 4Other Short-Term Business Decisions Managers FaceConsiderations for Dropping Products, Departments or TerritoriesSlide 34Slide 35Slide 36Dropping Products, Departments or TerritoriesE8-19ASlide 39Slide 40Learning Objective 5Product Mix ConsiderationsSlide 43Product MixProduct Mix When Demand Is Limited or Fixed Costs ChangeE8-21ALearning Objective 6Outsourcing (Make or Buy) ConsiderationsConsider Total Costs OnlyIncremental Analysis for Outsourcing DecisionOutsourcingE8-24AE8-24A (continued)Slide 54Learning Objective 7Sell As-Is or Process Further ConsiderationsIncremental Analysis for Sell As Is or Process Further DecisionSell As-Is or Process FurtherSlide 59End of Chapter 8Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.2Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Short-Term Business DecisionsChapter 83Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Learning Objective 1Describe and identify information relevant to short-term business decisions4Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. How Managers Make Decisions•Define business goals•Identify alternative courses of action•Gather and analyze relevant information•Choose best alternative•Implement decision•Follow-up: Compare actual with anticipated results5Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Relevant and Irrelevant Information•Relevant –Expected future (cost and revenue) data–Differs among alternative courses of action–Is both quantitative and qualitative•Irrelevant–Costs that do not differ between alternatives–Sunk costs (incurred in past and cannot be changed)6Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Relevant Nonfinancial Information•Nonfinancial, or qualitative factors, also play a role in managers’ decisions–Laying off employees –Outsourcing, reduced control over delivery time and product quality–Discounted prices to select customers•Managers who ignore qualitative factors can make serious mistakes 7Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Six Short-Term Special Decisions•Special sales orders•Pricing•Dropping products, departments, and territories•Product mix•Outsourcing (make or buy)•Selling as is or processing further8Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Keys to Making Short-Term Special Decisions•Decisions approach— Relevant information approach or Incremental analysis approach•Two keys in analyzing short-term special business decisions— Focus on relevant revenues, costs, and profits— Use contribution margin approach that separates variable costs from fixed costs9Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. S8-1a. The price of the new printerb.The price you paid for the old printerc. The trade-in value of the old printerd.Paper costse. The difference between the cost of ink cartridgesRelevantIrrelevantRelevantIrrelevantRelevant10Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Learning Objective 2Make special order decisions11Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A customer requests a one-time order at a reduced sale price, often for a large quantity:Special Order Considerations12Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Special Sales Order13Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Special Sales Order14Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Special Sales Order15Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Incremental Analysis of SpecialSales OrderExpected increase in revenues—sale of 20,000 oil filters x $1.75 each$ 35,000 Expected increase in expenses—variable manufacturing costs:20,000 oil filters $1.20 each(24,000)Expected increase in operating income$ 11,00016Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. E8-16A1. Prepare an incremental analysis to determine whether Sports-Cardz should accept the special sales order assuming fixed costs would not be affected by the special order.Expected increase in revenues—sale of 50,000 oil filters x $0.40 each$ 20,000 Expected increase in expenses—variable manufacturing costs:50,000 oil filters $0.35 each(17,500)Expected increase in operating income$ 2,50017Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. E8-16A2. Now assume that the Hall of Fame wants special hologram baseball cards. Sports-Cardz must spend $5,000 to develop this hologram, which will be useless after the special order is completed. Should Sports-Cardz accept the special order under these circumstances? Show your analysis.Expected increase in revenues—sale of 50,000 oil filters x $0.40 each$ 20,000 Expected increase in expenses—variable manufacturing costs:50,000 oil filters $0.35 eachspecial hologram cost(17,500) (5,000)Expected decrease in operating income$ (2,500)18Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Learning Objective 3Make pricing decisions19Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Regular Pricing Considerations•What is our target profit?•How much will customers pay?•Are we a price-taker or a price-setter for this product?20Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Price-Taker