ACTIVITY RESOURCE USAGE

MODEL AND TACTICAL DECISION

MAKING
CHAPTER 17

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
 CHAPTER 17 OBJECTIVES

1. Describe the tactical decision-making

model
2. Define the concept of relevant costs and
revenues
3. Explain how the activity resource usage
model is used in assessing relevancy
4. Apply the tactical decision-making
concepts in a variety of business
situations

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
 TACTICAL DECISION MAKING

• Choosing among alternatives with an

immediate or limited end in view

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service or otherwise on a password-protected website for classroom use.
 TACTICAL DECISION MAKING

The Tactical Decision-Making Process

•Recognize and define the problem
•Identify alternatives as possible solutions to the problem,
and eliminate any unfeasible alternatives
•Identify the costs and benefits associated with each
feasible alternative
• Eliminate the costs and benefits that are not relevant to the
decision
•Compare the relevant costs and benefits for each
alternative
•Assess qualitative factors
•Select the alternative with the greatest overall benefit
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
 TACTICAL DECISION MAKING

Summary of Decision-Making Process

•The six steps define a simple decision model
• Decision model is a set of procedures that, if
followed, will lead to a decision
•Steps 3 and 4 define tactical cost analysis
• Tactical cost analysis is the use of relevant cost data
to identify the alternative that provides the greatest
benefit to the organization

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service or otherwise on a password-protected website for classroom use.
 EXHIBIT 17.1—DECISION MODEL: TACTICAL
DECISION-MAKING PROCESS

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service or otherwise on a password-protected website for classroom use.
 RELEVANT COSTS AND REVENUES

• Relevant costs (revenues) are future costs

(revenues) that differ across alternatives
• If a future cost is the same for more than
one alternative, it has no effect on the
decision
• Such a cost is an irrelevant cost

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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
 RELEVANCY, COST BEHAVIOR, AND THE
ACTIVITY RESOURCE USAGE MODEL

• The activity resource usage model focuses

on the use of resources and has two
categories
• Flexible resources: purchased in the amount
needed and at the time of use (like electricity)
• Committed resources: acquired in advance of
usage through implicit contracting (like salaried
employees)
• Usually acquired in lumpy amounts

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service or otherwise on a password-protected website for classroom use.
 EXHIBIT 17.2: RESOURCE DEMAND AND
SUPPLY

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service or otherwise on a password-protected website for classroom use.
 ILLUSTRATIVE EXAMPLES OF TACTICAL
DECISION MAKING

Make or Buy Decisions

•A decision whether to make or to buy components
or services used in making a product or providing a
service
•Outsourcing refers to the move of a business
function to another company, either inside or
outside the United States

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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
 ILLUSTRATIVE EXAMPLES OF TACTICAL
DECISION MAKING

Keep-or-Drop Decisions
•Involves determining whether a segment or line of
business should be kept or dropped
• Uses relevant cost analysis

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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
 ILLUSTRATIVE EXAMPLES OF TACTICAL
DECISION MAKING

Special-Order Decisions
•Focuses on whether a specially priced order
should be accepted or rejected

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service or otherwise on a password-protected website for classroom use.
 ILLUSTRATIVE EXAMPLES OF TACTICAL
DECISION MAKING

Decisions to Sell or Process Further

•Joint products have common processes and costs
of production up to a split off point
•The point of separation is called the split off point
•Key point in this decision is that all the joint
production costs are irrelevant to the sell or
process further decision

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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
 END OF CHAPTER 17

© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.