Cost Accounting (14th Edition)

Enter Twitter. Like the e-mails
that Jet Blue has sent out to
customers for years, the widespread
messaging service allows JetBlue to
quickly connect with customers and
fill seats on flights that might
otherwise take off less than full.
When JetBlue began promoting lastminute
fare sales on Twitter in 2009
and Twitter-recipients learned that
$330 round-trip tickets from New
York City to Nantucket were
available for just $18, the flights filled
up quickly. JetBlue’s Twitter fare
sales usually last only eight hours, or until all available seats are sold.
To use such a pricing strategy requires a deep understanding of costs
in different decision situations.
Just like JetBlue, managers in corporations around the world use a
decision process to help them make decisions. Managers at
JPMorgan Chase gather information about financial markets,
consumer preferences, and economic trends before determining
whether to offer new services to customers. Macy’s managers
examine all the relevant information related to domestic and
international clothing manufacturing before selecting vendors.
Managers at Porsche gather cost information to decide whether to
manufacture a component part or purchase it from a supplier. The
decision process may not always be easy, but as Napoleon Bonaparte
said, “Nothing is more difficult, and therefore more precious, than to
be able to decide.”
Information and the Decision Process
Managers usually follow a decision model for choosing among different courses of
action. A decision model is a formal method of making a choice that often involves both
quantitative and qualitative analyses. Management accountants analyze and present relevant
data to guide managers’ decisions.
Consider a strategic decision facing management at Precision Sporting Goods, a manufacturer
of golf clubs: Should it reorganize its manufacturing operations to reduce manufacturing
labor costs? Precision Sporting Goods has only two alternatives: Do not
reorganize or reorganize.
Reorganization will eliminate all manual handling of materials. Current manufacturing
labor consists of 20 workers—15 workers operate machines, and 5 workers handle
materials. The 5 materials-handling workers have been hired on contracts that
Learning
Objective 1
Use the five-step
decision-making process
to make decisions
. . . the five steps are
identify the problem
and uncertainties;
obtain information;
make predictions about
the future; make
decisions by choosing
among alternatives; and
implement the decision,
evaluate performance,
and learn