CHAPTER 18

Decision Making

By : Putu Gede Lila Gargamunih Dewi

014201900006
•Closure decision, the assumption being that the closure would be
permanent
•Shutdown: A similar decision may have to be taken in respect of a
temporary closure
•Make or buy decisions require management to determine whether to
manufacture products
internally or purchase them externally.
Two type of pricing decisions
external pricing
• relates to the prices charged to
customers or clients external to the
entity
1. Market-based pricing
2. Cost-based pricing
-Below variable cost
-At variable cost
-At total production cost
-At total cost
-At cost plus
transfer pricing
• relates to prices charged by one part of
an entity to another part, such as when
components are supplied by one
segment to another segment. Methods :
- Market price
- Adjusted market price
- Total cost or total cost plus
- At variable cost or variable cost plus
- Negotiated price
- Opportunity cost
Generally it is more profitable to make
goods or to provide services internally
than to obtain them externally if their
variable cost is less than or equal to
external prices.

•The pricing of goods and services for selling externally will

normally be determined by the market price for similar goods and
services. In some cases, however, selling prices can be based on
cost. Depending on market conditions, the cost could be at or
below variable cost, the absorbed or the total absorbed cost, with
or without an addition for profit.
The internal transfer of goods and services
should be based on market price or adjusted
market price. Where this is not possible, any
price at or in excess of the variable cost should
be acceptable.

The ideal transfer price is one that is based on

the standard variable cost in the supplying
segment plus the entity’s opportunity cost
resulting from the transaction