Economic Decision Making Using Cost Data

Preface

The purpose of this book is to help managers make better decisions. Balance sheets and income statements reflect the results of past decisions. They do not evaluate individual decisions, nor do they provide definitive insights into decisions the firm may undertake in the future. But maximizing the value of the firm only occurs if each individual decision adds to its profits. Therefore, the manager must focus on the revenues and costs that will change if a decision is implemented.

Take, for example, a simple pricing decision. A manager is asked to quote a price to a prospective customer who may purchase up to three units. He realizes that if his quote is too high, he will lose the order to a competitor. If his quote is too low, the profit ...