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Chapter 5

Decision making

3.1 Key decisions

Special order pricing should be calculated based on relevant costing principles.

Accept/reject decisions should compare relevant revenue against relevant costs.

Further processing if the incremental revenue generated through further
processing is greater than the incremental cost of further
processing, then the products should be further
processed.

Shutdown if the product/department is generating a positive
contribution and the fixed costs are unavoidable, then it
should not be shut down.

Limiting factor products should be produced in order of contribution per
scarce resource.

Make or buy/ if the variable cost of producing the product internally is
outsourcing less than the cost of purchasing the product from the
external market and the fixed costs are unavoidable, then
the company should produce internally.

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