Relevant Information for Decision Making



Relevant Information for Decision Making

Introduction

Behemoth Motors Corp. (BMC) is an automobile manufacturing company based in the United States of America. The company has planned to incorporate a Global Positioning System Navigator (GPSN) in its Sports Utility Vehicles (SUV) commencement within the automobile of 2013 model. The paper demonstrates the decision making based on relevant information.

Discussion

The company has incorporated all the facts in presentable format to make a decision whether to include GPSN in all of its SUV or outsource from another company. The data that was gathered in the form of table is presented below in Table1.

Relevant Costs

Manufacture

Outsource

 

Per Unit

 

Materials $ 165.00

 

Labor:

$ 168.00

 

Factory Floor Space Charges

$ 5.00

 

Supervisory labor

$ 7.00

 

General company overhead

$ 80.00

 

Total annual relevant costs $ 425.00 $ 400.00

 

 

 

 

Irrelevant Costs

 

Penalty

$ - $ 33.00

Supervisory $ 9.00 $ -

Rented facilities

$ 7.50 $ -

Total annual operating costs $ 16.50 $ 33.00

It can be seen in the Table 1 above that the manufacturing cost of GPSN within the company is 425 US Dollar. If the company decides to outsource the GPSN from another company it will cost the company of 400 US Dollar per unit, which is a relevant cost for the company.

Managers of enterprises, as people who have to constantly take decisions, usually face more an alternative decision i.e. may seem a truism, you can just talk about making decisions when there are at least two alternatives (although one of them is to not do nothing or choose the current situation) (Tadelis, 2002). Consequently, if this happens, what really matters is consider what costs and what not suffer variation, by the act of choosing one or the alternative. In other words, the challenge is to detect and distinguish clearly differential costs of each ...