Accounting, 3rd Edition

Chapter 19

Short-term decision making

‘So there I was, fresh from the annual meeting of the Society for Judgement and Decision Making, and behaving like Buridan's Ass – the imaginary creature which starved midway between two troughs of hay because it couldn't decide which to go for.’

Source: Peter Aytan, Ditherer's Dilemma, New Scientist, 12 February 2000, p. 47.

Learning Outcomes

After completing this chapter you should be able to:

• Explain the nature of short-term business decisions.
• Understand the concept of contribution analysis.
• Investigate some of the decisions for which contribution analysis is useful.
• Draw up break-even charts and contribution graphs.

Go online to discover the extra features for this chapter at www.wiley.com/college/jones

Chapter Summary

• In business, decision making involves choosing between alternatives and involves looking forward, using relevant information and financial evaluation.
• Businesses face a range of short-term decisions such as how to maximise limited resources.
• It is useful to distinguish between costs that vary with production or sales (variable costs) and costs that do not (fixed costs).
• Revenue less variable costs equals contribution.
• Contribution less fixed costs equals net profit.
• Contribution and contribution per unit are useful ...