COST ACCOUNTING
INFORMATION FOR DECISION MAKING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The effect of the decision on employees’ morale
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The effect of the decision on customer perception of service quality
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The effect of the decision on the quality of the product produced
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The total cost savings to be gained from the decision
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Detailed explanation-1: -Qualitative factors that can influence a special order decision are the special order’s impact on sales to regular customers, its potential to lead the company into new sales areas, and the customer’s ability to maintain an ongoing relationship that includes good ordering and paying practices.
Detailed explanation-2: -1. Sunk costs (past costs) or committed costs are not relevant. Sunk, or past, costs are monies already spent or money that is already contracted to be spent. A decision on whether or not a new endeavour is started will have no effect on this cash flow, so sunk costs cannot be relevant.
Detailed explanation-3: -Hence, we conclude that changing the desired outcome is NOT one of the steps involved in the decision-making process.
Detailed explanation-4: -Qualitative factors may include issues such as the effect that a decision may have on product or service quality; on the morale of the workforce; the reliability of the supplier to deliver goods/services on time; the effect on any existing customers; and the effect of the decision on the reputation of the business.