Jessie Franz Radomes

Assignment 2

1. Why is it that historical costs are irrelevant as to making short-term

non-routine decisions?

Relevant costs are defined as costs that are different among alternatives
and have future consequences if forgone or incurred. Historical or sunk
costs do not comply with this definition because they are already
incurred and there would be no other way to reverse the occurrence of
it. It would be irrelevant to include this in making short-term decisions
since it is permanent whatever course of action is done.

Similar to historical costs are unavoidable costs, shutdown costs and

joint costs. These are costs that are considered irrelevant as to
minimizing cost and maximizing profit in a short-term context. These
costs will continue and retain whatever decision is made. Hence,
including such costs bear no consequences as to non-routine decision
making.

2. Which do you think is more important as a factor when evaluating

between two alternatives, the quantitative or the qualitative factor?
Explain.
Quantitative and qualitative factors are key components of all the
decision making in business. Both have different yet equally important
assertions. However, their significance is weighed distinctly according to
the company strategy and logic.

If a business is more concerned of the financial matters such as profit

maximization and cost minimization, then quantitative factors are more
massive. For instance, the company will always resort to cheaper
components to purchase with lesser consideration of the quality. The
company would always use relevant costing methods to accurately
decide on short-term non-routine decisions such as whether to buy or
make, accept or reject special orders, continue or shutdown segments,
sell or process further products and optimization.

On the other hand, if a business is focused on customer satisfaction,

customer loyalty and product quality, they would choose finest
components and laborers of utmost experience even if it would be costly
and less salable. Usually, luxury and sustainable business model resort
to this. For example, Chanel bags and shoes are hand-made by the best
artisans of its industry, not mentioning the extravagant direct materials
used. Moreover, sustainable companies use eco-friendly materials
regardless of the price or the quantitative aspect.

To conclude, the business model of a certain company greatly affects

the decisions. Quantitative factors weigh more in black and white yet in
real life qualitative factors are likely crucial. Hence, if both factors are
scrutinized and treated fairly, the best course of action will be done, not
only in business but in daily lives of a common person.