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Chapter 12: Tactical Decision Making (Tactical Decision Making (Model for…
Chapter 12: Tactical Decision Making
Tactical Decision Making
choosing among alternatives with an immediate or limited end in view
strategic decision
making is to select among alternative strategies so that a long-term competitive advantage is established
Model for Making Tactical Decisions
Step 1: Define the problem
Step 2: Identify the Alternatives
eliminate alternatives that are not feasible.
Step 3: Identify the Costs and Benefits Associated with Each Feasible Alternative
Step 4: Total the Relevant Costs and Benefits for Each Feasible
Alternative
Step 5: Assess the Qualitative Factors
Step 6: Make the Decision
Relevant Costs Defined
future costs that differ across alternatives
Ethics in Tactical Decision Making
In tactical decision making, ethical concerns revolve around the way in which decisions are implemented and the possible sacrifice of long-run objectives for short-run gain.
Relevance, Cost Behavior, and the Activity
Resource Usage Model
Flexible Resources
Resources that can be easily purchased in the amount needed and at the time of use
variable cost
relevant
Comitted Resources
purchased before they are used
Committed Resources for the Short Run
can be relevant
Committed Resources for Multiple Periods
sunk cost, never relevant
Illustrative Examples of Relevant Cost Applications
Make-or-Buy Decisions
decision of whether to make or buy components
used in manufacturing
Keep-or-Drop Decisions
determine whether or not a segment, such as a product
line, should be kept or dropped
with Complementary Effects
with Alternative Use of Facilities
Special-Order Decisions
whether a specially priced order should be accepted or rejected
accept only unit sell price > unit variable price and there are still idle capacity
Decisions to Sell or Process Further
Product Mix Decisions
A manager should choose the alternative that maximizes total profits
choose the alternative that maximizes total contribution margin
One Constrained Resource
Multiple Constrained Resources
linear programming
Pricing
Cost-Based Pricing
markup is a percentage applied to the base cost and it includes desired profit and any costs not included in the base cost
Target Costing & Pricing
determine cost of product based on price customers are willing to pay
Legal Aspects of Pricing
Predatory Pricing
setting prices below cost for the purpose of
injuring competitors and eliminating competition
Dumping
Predatory pricing on the international market
Price Discrimination
charging of different prices to different customers for essentially the same product
Fairness and Pricing
Price gouging
firms with market power price products
“too high.”