Page 281 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes According to Heinz Weihrich and Horold Koontz, "Decision-making is defined as the selectionof
a course of action from among alternatives."
George R. Terry says, "Decision-making is the selection based on some criteria from two ormore
possible alternatives."
According to Haynes and Masie, "Decision-making is a course of action which is
consciouslychosen for achieving the desired results."
Following are the important areas of decision-making or applications of marginal costing:
1. Fixation of Price,
2. Decision to Make or Buy,

3. Selection of a Profitable Product Mix,
4. Decision to Accept a Bulk Order,
5. Closure of a Department or Discontinuing a Product,
6. Maintaining a Desired Level of Profit, and

7. Evaluation of Performance.

13.2 Determination of Sales Mix

In the market, dealership is offered by the various companies to the individual intermediaries
in promoting the sale of products. Before reaching an agreement with the company to act as a
dealer, normally every individual consider the profitability of the product mix offered by the
firm. For example, There are two different companies brought forth their advertisements in
offering the dealership to the individual trading firms viz. HCL and IBM.
The profitability under the dealership banner should be appropriately considered prior to take
decision. To take rational decision, the firm should compare the profitability of both different
dealership of two different giant industrial brands. The greater the share of the profitability in
volume will be selected and vice-versa.

Example: From the following information has been extracted of EXCEL Rubber Products
Ltd:
Direct materials A 16
Direct Materials B 12
Direct wages A 24 Hrs at 50 paise per hour
Direct wages B 16 Hrs at 50 paise per hour
Variable overheads 150% of wages
Fixed overheads 1,500
Selling price A 50
Selling price B 40

The directors want to be acquainted with the desirability of adopting any one of the following
alternative sales mixes in the budget for the next period:
1. 250 units of A and 250 units of B
2. 400 units of B only

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