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CHAPTER SEVEN
Relevant Costs and Product Planning Decisions
In this chapter, we analyze a variety of short-term decisions affecting
managers. These decisions include: an examination of the pricing of
special orders; whether to outsource labor; whether to make or buy a
Key Concepts
• The price of a special order must be higher than the additional
variable costs incurred in accepting the special order plus any
opportunity costs incurred in accepting the special order.
Instructor’s Manual
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Learning Objectives
LO1— Analyze the pricing of a special order
LO2— Analyze a decision involving the outsourcing of labor or making
further
Lecture Outline
A. Special Orders (LO1)
o The decision to accept or reject a special order is just a
pricing decision.
B. Outsourcing and Other Make-or-Buy Decisions (LO2)
o These decisions affect a wide range of manufacturing,
Key Concept
The price of a special order must be higher than the additional variable costs
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2. The Make-or-Buy Decision
C. The Decision to Drop a Product or Service (LO3)
o These decisions are among the most difficult that a
and qualitative factors affecting the decision.
D. Resource Utilization Decisions (LO4)
o A constraint is a restriction that occurs when the capacity
Key Concept
A product should continue to be made internally and labor incurred
Making it Real
I Can Make That Part!
Key Concept
Instructor’s Manual
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o A resource utilization decision is a short term decision
E. The Theory of Constraints (LO5)
o The theory of constraints is a management tool that
identifies bottlenecks in the production process.
End-of-Chapter Material
This chapter has a large number of good short activities dealing with the
Key Concept
A product should be processed further if the additional revenue exceeds the
additional cost of processing.