Management Accounting

TACTICAL DECISION MAKING

MEMBER OF GROUP
Keichy Anomosa 1110532068
Putri Suryani 1110532063
Winda Wulansari 1110532012
Ramagita Iswara 1110532049
Triana W.W.N 1110533046
Yulvita Andriani 1110533025


LEARNING OBJECTIVES
1. Distinguish between tactical decision
making and strategic decision making
2. Explain the tactical decision model
3. Explain relevant costs and irrelevant cost as
well as the examples of relevant costs and
irrelevant costs
4. Apply the concept of relevant cost to make
our by decision
LEARNING OBJECTIVES (Cont.)
5. Apply concept of relevant cost to keep or drop decision
6. Apply concept of relevant cost to special order decision
7. Apply to concept of relevant cost to sell at split off
point or process further decision
8. Explain the impact of cost on pricing decisions.
9. Use linear programming to find the optimal solution to
a problem of multiple constrained resources.
SUB-TOPICS OF DISCUSSION
Tactical decision making vs strategic
decision making
Tactical decision model
Relevant cost
Cost concepts associated with the
decission making
SUB-TOPICS OF DISCUSSION (Cont.)
Application of relevant cost to make or buy
decision
Application of relevant cost to keep or drop
decision
Application of relevant cost to special order
decision
Application of relevant cost tosell at split off
point or process furthher decision

TACTICAL DECISION MAKING :
DEFINITION
Tactical decision making consist of
choosing among alternatives with an
immediate or limited end in view
Strategic decision making is selecting
among alternative strategies so that
long term competitive advantage is
estabilished.
TACTICAL DECISION MODEL
Recognized , define the problem
Identify alternatives , eliminating those that
are unfeasible
Identify costs and benefits
Total relevant costs , benefits of each
alternatives
Assess qualitative factors
Select alternative with greatest overall benefit
Step 1 : define the problem Increase capacity for warehousing and production
Step 2 : identify alternatives 1. Build new facility
2. Lease larger facility ; sublease current facility
3. Lease additional facility
4. Lease warehouse space
5. Buy shafts and bushing ; free up space
Step 3 : identify costs ,
benefits
Alt 4: <costs> +benefits
Alt 5: <costs> +benefits
Step 4 : total relevant costs
and benefits
Alt 4 : cost $1000 rent and make
Alt 5 : cost $ 800 (buy from supplier)
Differential cost $200 (alt 5 chosen)
Step 5 : assess qualitative
factors
1. Product quality
2. Reliability of external supplier
3. Price stability
4. Labor relations and community image
Step 6 : make decision Continue producing and lease warehouse (alt 4 is
chosen if assuming qualitative factors are not)
Relevant Costs Defined
relevant cost is the cost that affects the
decision . The main characteristic of relevant
costs are future costs are future costs that
differ across alternatives
COST CONCEPTS ASSOCIATED WITH
DECISION MAKING
Opportunity cost
Opportunity cost is benefit (revenue) that is sacrificed because of choosing
alternative. For example, salary that you sacrifice because of choosing to study
at the university. Opportunity cost is relevant cost because it affects the
decision that will be made
Avoidable and unavoidable cost
Avoidable cost is the cost that will vanish by choosing the alternatives . For
examples are variable production costs and avoidable fixed factory overhead
cost . Avoidable cost is relevant cost . Unavoidable cost is the cost that will still
occur whatever alternatives are chosen . Avoidable cost is irrelevant cost.
Sunk cost
Sunk cost is cost that occurred because of previous decision , for example
depreciation expense . Sunk cost is relevant cost.
Differential cost
Differential costs are that differ among the alternatives . Differential cost is a
relevant cost .
APPLICATION OF RELEVANT COST
Make or buy decision
Keep or drop decision
Special order decision
Sell at split off point or process further
decision
When is this decision?
When there is supplier offering the same
component a lower price
What are relevant costs and irrelevant costs in
this decision?
- Relevant costs are avoidable cost
- Irrelevant costs are unavoidable fixed factory
overhead cost
When is buy decision made?
When avoidable manufacturing costs is greater
than cost of purchase or cost of purchase minus
opportunity cost

MAKE OR BUY DECISION
Example:
Production cost of component X at capacity of 1000 units are
follows:
Unit cost Total
Raw material Rp. 500 Rp. 500.000
Direct Labour 400 400.000
FOH-variable 150 150.000
FOH-fixed 450 450.000
Total Rp. 1500 Rp.1500.000

Of total fixed factory overhead cost, included property tax
Rp. 50.000, and depreciation expense of factory building
Rp.200.000. External supplier offers the same component
for Rp. 1350/per unit.
Required: Should we accept the suppliers offering?


KEEP OR DROP DECISION
Keep or drop decision is the decision about whether or not
a segment , such as a product line , division, or branch
should be kept or dropped
When is this decision made ? When the segment is getting
a loss
Segmented report prepared on a variable costing basis
provides valuable information for keep or drop decision
What are relevant costs and irrelevant costs for this
decision?
- Relevant costs are avoidable costs (variable costs and
avoidable fixed costs) and opportunity cost
- Irrelevant costs are unavoidable fixed costs
When is drop decision made?
When revenues of dropped segment is lower than their
avoidable costs or when segment has a loss

PT.Coca Cola producers three products: Coca
Cola, Fanta, and Sprite. The accounting
manager has prepared the following
estimated income statement for 200x (in
thousand of rupiahs) :
Sample Problem
Coca cola Fanta Sprite Total
Sales 500 800 150 1,450
Variable expenses (250) (480) (120) (850)
Contribution margin 250 320 30 600
Direct fixed expenses :
-Advertising (10) (10) (10) (30)
-Salaries (17) (20) (15) (52)
-depreciation (73) (60) (30) (163)
-Total (100) (90) (55) (245)
Segment Margin 150 230 (25) 355
Common fixed expenses (40) (40) (40) (120)
Operating income (loss) 110 190 (65) 235
Because the projected performance of sprite
product line shows a negative segment
margin, management of PT Coca Cola is trying
to decide to drop the Sprite product line.
Required :
What is the best decision for this case?
To drop the sprite product line (assuming the sprite
capacity is idle)
Sprite capacity used for expansion of Fanta product line
(increase sales of 20%)
Sprite capacity can be rented to other party for Rp
50,000
SPECIAL ORDER DECISION
This decision is related to accept or reject the special order from a
particular customer
When is this decision made?
When customer wants to buy the product at highly lower price
Special order is the order from potential customers in markets not
ordinarily served or non regular customers
Fixed costs will not be assigned to special order because they have
been fully assigned to regular sales (orders)
What are relevant costs and irrelevant costs for this decision?
- Relevant costs are variable costs and additional costs related to
special order
- Irrelevant costs are fixed cost
When will special order be accepted?
When the price of special order is greater then variable costs and
additional costs related to special order
SELL AT SPLIT OFF POINT OR PROCESS FURTHER
DECISION
Join product are two or more products that are
produced through a common process
Join products can be identified at a split off point
(the point that products are distinguishable ).
Joint costs are the costs to produce the joint
product
Separable costs are the costs incurred after
products are identifiable or costs to process
further
Sometimes, it is more profitable to process a joint
product further , beyond the split off point
What are relevant costs and irrelevant costs for
this decision
- Relevant costs are separable costs and
opportunity cost (revenue of split off product
foregone because of processing further) as well
as the price after products are processed further
- Irrelevant costs are joint costs
When is process the product further decision
made
When additional revenue is greater than separable
cost or when sales revenue after products are
processed further is greater than separable costs
and opportunity costs
the impact of cost on pricing decisions
Costs are important inputs into the pricing
decision. Cost-based pricing uses a markup
based on a subset of costs. Target costing
works backward from a price acceptable to
consumers to find the cost necessary to
manufacture the product.
Use linear programming to find the
optimal solution
Linear programming is a method that locates
the optimal solution in a set of feasible
solutions. The graphical method may be used
with two products. When more than two
products are involved, the simplex method is
used.
Formulasi dari linear programing
Formulasi dari linear programing dibuat dalam
model matematik dan sesuai dengan problem
manajerial, untuk itu perlu diketahui lebih
dahulu:
Problem manajerial harus dapat dijelaskan dengan sempurna
Mengidentifikasi mana yang menjadi fungsi tujuan dan fungsi
batasan
Tentukan variabel yang akan menjadi keputusan
Variabel-variabel yang ada dalam fungsi tujuan dan batasan
harus dapat diekspresikan dalam bentuk matematik
Case
Sebuah perusahaan menghasilkan dua macam produk yaitu
tas dan dompet . Jumlah sumber daya yang diperlukan untuk
memproduksi kedua macam produk ini adalah kulit dan
benang. Setiap unit tas yang dihasilkan membutuhkan kulit
dan benang 0,5m dan 0,25kg. Keperluan untuk dompet setiap
unitnya memerlukan kulit 0,25m sedangkan benang 1kg.
Sumberdaya yang tersedia di perusahaan setiap bulannya
paling banyak untuk bahan kulit 100m dan benang 100kg.
Pada kasus ini masalah yang dihadapi perusahaan adalah
menentukan jumlah tas dan dompet yang akan diproduksi
agara perusahaan dapat memperoleh keuntungan yang max
dimana keuntungan per unit untuk tas 1000 dan dompet 250.
1. Fungsi tujuan(objective function)
Z=1000X+250Y
2.Contraints function (fungsi kendala)
Batasan kulit: 0,50X+0,25Y100
Batasan benang: 0,25X+Y100
3. Non negatif contraints
x0; y0

1. Sumbu kulit
0,5x+0,25Y100
Mis x=0, maka
0,5(0)+0,25y100
X400 ..A(0,400)
Y=0, maka
0,5x+0,25(0)100
Y200.B(200,0)

2.Sumbu benang
0,25x+y100
Mis: x=0,maka
0,25(0)+y100
y100........C(0,100)
y=0,maka
0,25x+0100
X400.D(400,0)
E:
0,5 x+0,25y 100 1 0,5 x+0,25y 100
0,25 x+ y 100 2 0,5 x+ 2y 200
-1,75y -100
y57,143
0,5 x+0,25(57,143) 100
x 171,43
E(171,43;57,143)





Kesimpulan:
Dari keempat titik O,C,B,E maka nilai yang paling
maksimal ada di titik B. Berarti produksi tas
sebanyak 200 unit dan tidak memproduksi
dompet maka keuntungan yang akan di peroleh
akan maximal yaitu senilai 200.000
Titik Sudut X Y Z=1000x+250y

O 0 0 0
C 0 100 25000
B 200 0 200000
E 171,43 57,143 185715,75
Graphical solutions are not practical with
more than two or three products. Fortunately,
an algorithm called the simplex method can
be used to solve larger linear programming
problems.
Metode simplek linear programing
dipecahkan secara aljabar