TACTICAL DECISION MAKING

KHOVIFAH AVIZA (1910531032)

ZAKIA LUTFI FARHANI (1910531043)
CONTENTS:
1. Tactical decision model

2. Relevant cost concepts

3. Make or buy decision

4. Keep or drop decision

 On Decision Making

Tactical Decision
Strategic Decision Making Making

Long-term Consists of
oriented choosing
decision to among
create alternatives
competitive with an
 Tactical Decision Model

01 03
Define the problem
02 Identification of
costs and benefits
Identify alternative as

04 possible solutions to the

problems
06
Calculate the relevant costs Choose alternatives that have
and benefits of existing great benefits
alternatives 05
Evaluation of qualitative
factors
 Relevant Cost Concept
Relevant cost are future costs that differ across alternatives.
Cost must not only be a future cost but must also differ
between alternatives.
 What is relevant cost???
01 02

Differential Opportunity Cost

Cost
03

Avoidable Cost
 What is not relevant cost???

01 02

Sunk Cost Unavoidable Cost

Application of Relevant Cost

1. Make or buy decision

2. Keep or drop decision

3. Special order decision

4. Sell at split of point or process further decision

 Make or Buy Decision
1. When is this decision made?
When there is a supplier offering the same component at lower price. Example,
manufacturing cost for component per unit Rp 5.000 and supplier offers for Rp
4000 per unit, do we accept or reject?
2. What are relevant costs and irrelevant costs in this decision?
Relevant costs are avoidable costs.
Irrelevant costs are unavoidable costs.
3. When is buy decision made?
When avoidable costs is greater than cost of purchase.
 Make or Buy Decision
Example
Production costs of component at capacity of 1.000 units are as follows:

Cost/unit Total
Raw Material Rp 500 Rp 500.000
Direct Labors 400 400.000
FOH-V 150 150.000
FOH-F 450 450.000
Total Rp 1.500 Rp 1.500.000
 Make or Buy Decision

From the total FOH-F (450,000)

including land and building tax (50,000)
Required
and :
factory depreciation cost
(200,000). Suppliers offer components
ata.aWas the
price ofoffer from /the
Rp. 1350 unitsupplier accepted?
Assuming the capacity normally used to
make these
components is left idle.
 Make or Buy Decision
A.
Total production cost Rp 1.500.000
Unavoidable costs 250.000
Avoidable costs 1.250.000
Cost of purchase from supplier
(1000 x 1,350) 1.350.000 Total
Rp 100.000
The conclusion is more efficient own production because it saves 100,000
 Make or Buy Decision

A. Own Production Purchase

Avoidable cost Rp 1.250.000 -
Cost of purchase - Rp 1.350.000
Unavoidable cost 250.000 250.000
Total cost Rp 1.500.000 Rp 1.600.000
 Make or Buy Decision
B.
Avoidable cost Rp 1.250.000
Cost of purchase 1.350.000
Rent revenue 150.000
Net purchase 1.200.000

cost savings when purchased from suppliers Rp 50.000

The conclusion is more efficient purchase from supplier because it saves 50,000
 Make or Buy Decision
B.
Avoidable cost Rp 1.250.000
Opportunity cost 150.000
Total Cost (own productions) Rp 1.400.000
Cost of purchase 1.350.000

cost savings when purchased from suppliers Rp 50.000

 Make or Buy Decision
C. Qualitative Factors :
1. Quality of product
2. Reliability of suppliers
3. Price stability
4. Confidentiality of product
5. Innovation products
 Keep or Drop Decision
Decision about a segment, such as division, branch, or product should be kept
or dropped and reports with variable costing are required.
When is this decision made?
When the segment is getting a loss.
What are relevant costs and irrelevant costs in this decision?
Relevant costs are avoidable costs.
Irrelevant costs are unavoidable costs.
When is drop decision made?
If the segment is loss, where avoidable cost is greater than revenue.
 Keep or Drop Decision
Example
PT. Coca Cola produces 3 types of products, namely Coca Cola, Sprite, and Fanta.
Income statement in format variable costing in 2021 (in million rupiah) is as follows:

Coca Cola Sprite Fanta Total

Sales 500 150 800 1.450
Variabel expenses (250) (120) (480) (850)
Contribution margin 250 30 320 600
Directed fixed expense:
Advertising (10) (10) (10) (30)
Salaries (17) (15) (20) (52)
Depreciation (73) (30) (60) (163)
Total (100) (55) (90) (245)
Segment margin 150 (25) 230 355
Common fixed expenses (40) (40) (40) (120)
Operating income 110 (65) 190 235
 Keep or Drop Decision
Required :

a. Do you agree with management decision to drop the Sprite ? Assuming the Sprite capacity is idle.
b. What your recommendation if Sprite capacity can be used for expansion of Fanta. When this is done,
fanta sales will increase by 20%.
c. What your recommendation if Sprite capacity can be rented out to other party for 50,000,000?
d. What qualitative factors should be considered?
 Keep or Drop Decision
A.
Sales Rp 150.000.000
Avoidable costs :
Variabel costs Rp 120.000.000
Advertising 10.000.000
Salaries 15.000.000
Total Rp 145.000.000
Segment margin Rp 5.000.000

The decision is that the Sprite should not be closed because it still provides a
profit of 5,000,000
 Keep or Drop Decision
PT. Coca Cola produces 3 types of products, namely Coca Cola, Sprite, and Fanta.
Income statement in format variable costing in 2021 (in million rupiah) is as follows:

Total before closed Sprite Total after closed

Sales 1.450 150 1.300
Variabel expenses (850) (120) (730)
Contribution margin 600 30 570
Directed fixed expense:
Advertising (30) (10) (20)
Salaries (52) (15) (37)
Depreciation (163) (163)
Total (245) (25) (220)
Segment margin 355 5 350
Common fixed expenses (120) (120)
Operating income 235 5 230
 Keep or Drop Decision
B.
Additional sales of Fanta Rp 160.000.000
20% x 800,000,000
Additional variable expense :
20% x 480,000,000 Rp 96.000.000
Additional CM Rp 64.000.000
Sprite margin (miss) (5.000.000)
Additional margin Rp 59.000.000

The decision is that the Sprite should be closed and its capacity can be used for the
development of the Fanta because it could provide an additional profit of 59,000,000
 Keep or Drop Decision
C.
Rent income Rp 50.000.000
Sprite margin (miss) (5.000.000)
Additional income Rp45.000.000

The decision is that the sprite should be closed and its capacity can be rented out
with other parties because it can provide an additional profit of 45,000,000
D. Qualitative Factors :
1. The fate of Sprite worker
2. Sprite redesign possibilities
3. Possibility entry new competitors
Thank You for Your
Attention