ACCT 2102 1nd Edition Lecture 11 Outline of Last Lecture II Calculating Sales Revenue a Changes in Costs III MultiProduct Calculations Outline of Current Lecture III Business Decisions a Special Order Decisions b Pricing Decisions Current Lecture Business Decisions Whenever you are forced to make business decisions there are 3 things you need to consider First you must identify the information and make sure it differs between alternatives and is future oriented Next you must consider the qualitative factors of the factors you can touch The last thing is to analyze the variable and fixed costs by using the contribution margin income statement For this business decisions the fixed costs need to be in a total format and the variable costs should be by units Special Order Decisions With special order decisions you need to identify the excess capacity by taking the full operating capacity and subtracting the current operating capacity This leaves the excess amount of units which can be completed for a special order If there is not enough excess space for a special order then businesses will either have to cancel the order or take away some regular operations You also must consider if the reduced sales will be high enough to cover the costs of filling the special order Due this by multiplying the special unit contribution margin by the number of units ordered and then subtract the increase in fixed costs These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Pricing Decisions For pricing decisions you must consider what the target profit is This can be calculate by taking the revenue minus the cost to give the profit The company must also consider whether they are a price taker or price setter If you re a price taker then the market created the price If you re a price setter then there is no competition
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