Chapter 11: Short term decision making using relevant costing
You’re a designer for a clothing brand – your business started small, with you making clothes yourself. Eventually growth meant that you hired a group of seamstresses to sew clothes for you. However, the business has exploded when people participating in an online reality show started wearing and raving about your clothes on social media.
Business has exploded! But now you’ve got some choices as demand has increased and you’re confused about how to make these decisions. Some of the choices you are faced with include:
- One of these tv stars has approached you about doing a collaboration of special leggings – do you accept?
- A major seller is a waterfall cardigan that mixes and matches with many outfits. A factory in Vietnam has approached you – they can make the cardigan for you – is this a good option?
- A low seller is leather jackets, but could it be because of the weather or is the product just a dud? Should we keep it or drop this product?
- With all of these decisions – the business has limited funds – what is the best way to spend them?
In this chapter – we’ll examine what information is required to help us make these decisions. Our learning objectives are:
- Understand what relevant information is required for these types of decisions
- Make a decision about whether to accept a special order
- Make a decision about whether to make or buy a product or component
- Make a decision about whether to keep or drop a product, service or department
- Make a decision when our resources are scarce
- Consider what information is required when making longer term decisions
