DECISION MAKING

By:
Dr. Shivani Bansal
Assistant Professor
Shyama Prasad Mukherji College
University of Delhi
• Next decision
4. Make or Buy alternative
• Make or Buy alternatives can be analyzed on the basis of the
comparison of differential cost and incremental revenues.
• Compare the incremental, out-of-pocket type costs of making the
product internally with the definite out-of-pocket costs (price) of
purchasing the product externally.
• Essentially in this analysis, costs which will be eliminated if the
product is no longer produced internally (i.e., the benefits of not
producing internally) must be compared with the costs (purchase
price, freight charges, insurance, sales taxes, import duties, etc.) of an
outside purchase.
5. Further processing of joint products
• In some manufacturing processes, several intermediate products are
produced from a single input. Such products are known as joint
products.
• Management has to decide whether to further process Joint Product
or sell By-Product. Sooner or later a decision often has made about
selling a joint product as it is or after processing it further.
• Such decisions are taken on the basis of comparison of differential
cost and incremental revenue.
Practice Question: Further Processing or not
• Since there are
not much
questions in
your book on
this topic, try to
understand
using this
example.
Home Assignment
• Practice Illustration 6.9

• Thanks!