BUS-A 202 Study Guide - Midterm Guide: Direct Labor Cost, Contribution Margin, A202 Road
Document Summary
Focus on this when deciding to keep/not keep aspect of business. Question of control, cost and social responsibility. Find relevant costs and compare total costs between options. Gaps between supply and demand exist because capacity is fixed in the short term. Capacity: maximum volume of activity that a company can sustain with the available resources, valleys. Fixed moh is not relevant: determine the value of these costs/benefits, determine if there is an opportunity cost (doing nothing is 0 opportunity cost) If profit is greater than 0, accept: to find the minimum price to charge: Take total costs / number of units produced. Revenue is not relevant: not enough capacity: Take the (quantity need for special order capacity units) * cm per unit to find opportunity cost. If units of idle capacity are > units in the special order, then no opportunity cost. If units of idle capacity are < units in the special order, then have an opportunity cost.
