Question

This is all the information that I have( this is chapter 11 of Horngren's Cost Accounting)

What is the decision criteria for:

a buy or make decision

special order decision

dropping a product ,service, plant decision

sell or process further decision

allocation of a scarce (or constrained) resource decision-24

Answer 1

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Decision criteria for a buy or make decision is to select that option which reduces the overall costs.

Decision criteria for a special order decision is to make sure that relevant product cost does not exceed the order value.

Decision criteria for dropping a product ,service, plant decision is to make sure that operating income will increase.

Decision criteria for sell or process further decision is to sell at that point which gives highest profits.

Decision criteria for allocation of a scarce (or constrained) resource decision is to allocated the resource to that product having highest contribution per unit of that resource.