Answer to Question #146207 in Management for ka

Question

Mr Chopra is the CEO of Tasty packaged Foods. They manufacture various products like potato fries, samosas etc. Post covid, the company is under revenue pressure due to the reduced demand for packaged food. Like every other business, the short term decision making process in this business is also a process of selecting the best amongst various alternatives considering the cost benefit factors and impact on overall profitability of the firm. These could involve accepting or rejecting a special order, making or buying decisions, product mix decisions etc. These decisions require different analysis like Contribution margin analysis, relevant and irrelevant cost analysis.
Please describe any 3 of these short term decision strategies with salient features.

Answer 1

Relevant cost is a decision-making accounting term that defines preventable costs that are suffered merely when making complex commercial decisions. The idea of relevant cost is employed to disregard needless data that could confuse the policy-making procedure. For instance, relevant cost is employed to describe whether to retail or keep an industrial or commercial unit. The reverse of a relevant cost is a ruined budget that has already been sustained despite the existing decisions' outcomes.

An exceptional order takes place when a consumer places an order near the end of the month, and prior sales have previously covered the fixed cost of manufacture for the month. If a consumer needs a price estimate for an exceptional order, the administration merely reflects the variable expenses to produce the products, precisely labor, and material expenses. For example, fixed costs, such as workshop rent or executive remunerations, are irrelevant since they have already compensated for those expenses with prior sales.