Chapter 17

Activity Resource Usage Model and Tactical Decision Making

Directed Reading

Part I- Tactical Decision Making Model (LO1)

1. What is tactical decision making?

Tactical decisions are the decisions which are being taken by the middle management of any
firm/company and they are for short terms hence they are dealt by the middle managers most of
the time. Basically, they reflect the orders beings made in the strategic decisions and to achieve
the objectives of the strategic decisions, tactical decisions. Lets take an example for a firm to be
a market leader, the firm has to take decisions like as launch a discount offer or a new product.

2. List the steps in the tactical decision making model.

Step 1
The first step is to Recognise and identify the Problem
Step 2
In the second step we have to find the alternatives as the possible solutions to problems
Step 3
In the step three we calculate and estimate the cost of the solutions we have chosen and their
benefits.
Step 4
In this step we compare the alternatives among each other and look at their cost and benefits.
Step 5
This step is the final in which we select the Option which is most feasible and less costly
among all of the solutions.

Part II The concept of relevancy (LO 2)

3. Describe the concept of relevancy.

Actually, it is the Relevant cost which defines the how much costs are avoidable when
are making any business decisions and how we can save them. The basic idea behind this
concept is to minimize all the irrelevant data which might get in the way of decision
making and make it complicate.

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 4. One type of cost that is not relevant is a ______Sunk cost_____ cost, a cost that is past
and cannot be changed no matter which alternative is selected. A common type of sunk
cost is _______________________.

5. Is all relevant information financial in nature? Explain.

There are four types of relevant cost which includes cash inflow cast, opportunity cost,
avoidable cost and the last one is the incremental cost while as the other non-relevant cost
which can also be financial in nature as well. As defined above all the four types of
relevant cost brings cost and monetary amount in the business either in the present or in
future.

Part III- Relevancy, cost behavior, and the tactical resource model (LO 3)
6. A flexible resource is one in which the resources demanded _can easily purchased and
readily__ the resources supplied. If there is no ___need___, then we do not incur any
costs for the resources. This makes flexible resources relevant/irrelevant (circle one).

7. Committed resources are acquired in advance of usage; you are implicitly committed to
acquiring them. This makes these types of resources are relevant/irrelevant (circle one).

8. The key element as to whether something is relevant or not is if it will _be feasible_ if
you select an alternative. So, even though committed resources are normally irrelevant,
they could be ____relevant____________ if you can avoid them.

Part IV Making Tactical Decisions (LO4)

9. Describe a make-of-buy decision.

The basic concept of make or buy decision is that either we should manufacture the
product ourselves or we should go for the outsourcing that is we should hire someone
from the outside to manufacture the product for us.

10. How will you make this decision (in other words, is it a profit decision, cost decision,
what)?

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 The decision is not that much easy as it sounds because this decision involves the
different technique after that we can decide that either we should go for outsourcing or
manufacture ourselves, the most common thing observe is that price to cost ratio. How
much Profit we will make after incurring particular amount of the cost in the product or
service.

11. What kind of qualitative factors will you consider in a make-or-buy decision?
The factors that might be considered in this section are the Experience of the production
department and also of the marketing department in the new product like as if the
experience our production and marketing department has is related to the different
products and we might not get we want from the prototype and it might get costly for us

12. What is a keep or drop decision?

Keep or drop decision is that we want to discontinue one or more SBU from our
company because of its decline in the demand or the product is costly which is not
yielding the profit which we anticipated in the past. So go on to either market it
furthermore or bear the cost and shut down the unit

13. To make this kind of decision, it is helpful to prepare a segment income statement. A
segment income statement looks like:

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14. To make this type of decision, you examine whether revenue or costs are directly
attributable to the segment or not. If they are directly attributable to the segment and you
eliminate the segment, they will __effect the revenue and Cost of Goods_.

15. This tells you that if have a positive segment margin, you should ___keep__ the segment.

16. What types of qualitative factors would you consider with this type of decision?

the factors that I will consider are that how much adverse effect this might cause to my co
workers and their families and how much society will be hit with this kind of decision
making, so keeping in mind the costs of the decision I will also look at these qualitative
decisions too.

17. What is a special order?

This is customized order placed by the clients for the particular events and this totally deals
with our production capacity like as if we have capacity and we can meet the deadline then
we will go for it and order it as this will be beneficial for us while consuming little bit of
time.

18. How will you make this decision?

First of all I would like to see if I can meet the deadline without any kind of bigger risk or
loss then I will look if this will not contradict my major strategic objectives which we
have decided and they need our al focus and We also see if this might hurt our strategic
decisions then we will not accept it.

19. What are some of the qualitative factors you will consider with this type of decision?
the Qualitative factors that I will consider while making this decision is that wether my
customer satisfaction would increase or decrease and how much motivated my
employees after accepting this decision

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20. A sell now-process further decision is a special type of joint cost decision. Recall that
joint costs are costs incurred prior to the identification of separate products. We identify
separate products at the split-off point. So, a sell-now or process further decision is us
deciding if we sell the product at the split-off point or incur separable costs to process it
further and sell it at that point. In this example, joint costs are relevant/irrelevant (circle
one).

21. Does the concept of relevancy affect personal decisions? Explain.

Yes, they effect the personal decisions because when we calculate the opportunity cost
for any task first we will see the opportunity cost and how much benefit it will make us
then will go with it to the next step.