Question

Please respond to the below questions & in your response, please note the question number and description. 1. Describe the Six Key Concepts for Decision Making 2. Why is it important to isolate relevant costs? 3. What is a cost analysis? 4. How would you determine if you should make a product internally or buy it from a third party? 5. What is opportunity costs?

Answer 1

1. Six Key Concepts for Decision making.

a) Define the problem

b) Establish the goal

c)Identify resources

d)Consider the alternative

e)Make a decision

f)Evaluate the result

2. Important to isolate relevant cost -

A relevant cost or benefit is a cost or benefit that differs between alternatives. Differential costs are relevant costs. Any cost or benefit that does not differ between alternatives is irrelevant and can be ignored in a decision. This is a tremendously powerful concept that allows us to ignore mounds of data when making decisions since most things are not affected by any given decision

3. Cost Analysis

a) act of breaking down a cost summary into its constituents and studying and reporting on each factor

b)Comparison of costs (as of standard with actual or for a given period with another) for the purpose of disclosing and reporting on conditions subject to improvement

4,Things to determine to make product internally or buy.

First thing to compare is how much money it will cost for making internally and buy from outside.

Benefits on making internally -

a.Producing a part internally reduces dependence on suppliers and may ensure a smoother flow of parts and material for production.

b. Quality control may be easier when parts are produced internally.

c. Profits can be realized on the parts and materials.

Benefits on Buy -

By pooling the requirements of a number of users, a supplier can realize economies of scale and may be able to move more quickly up the learning curve.

b. A specialized supplier may be able to respond more quickly and at less cost to changing future needs.

Both has its own advantages and dis advantages.

5. Opportunity Cost -

When an option is chosen from alternatives, the opportunity cost is the "cost" incurred by not enjoying the benefit associated with the best alternative choice.