CVP Analysis In Module 2

Submitted By sinonly
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This discussion started when we did CVP analysis in Module 3. We’re now extending it in two specific areas.
So we’re going to take a look at how to decide whether or not you should take a special order, a one-time special order reduced price that may appear to increase profitability, but will have all kinds of other consequences; how to decide whether or not you should outsource a product as opposed to make it yourself; how to decide whether or not you should bring on a new product line or delete a product line; how to allocate the scarce resources to all of your products that utilize it because you only have so much quantity of this scarce resource over a particular period of time.
And one of the relevant costing decisions we’ve already elaborated on when we did joint cost back in module 3, but this is a sell or process further decision. So you will have a product that comes out of a joint process. You have a chance.. you could sell it at the split-off point or you could process it further and sell it at a higher price. How do you decide whether or not you should process it further? We’re going to spend quite a bit of time on these. And how I’m going to approach each one of these is by walking through an example, then walking through the theory in the slides, and then by doing several problems behind each one. And you’re going to find that every single problem that we look at appears to be different, but depending on where the relevant costing decision fits in one of those five areas I talked about earlier, you’re going to find that there’s an approach that we can take in order to solve the problem. So two most important things when you’re