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The major limitation of using cost-based data in decision making is that most cost-based data is backwards looking or historical and decisions are made for future actions. If there is a possibility that future costs would be different (e.g., a commodity like oil is used in the production process), there is a likelihood that the decision may be different as well.
One way to minimize the limitation is to perform sensitivities on each cost basis to better understand how risky a future change in costs may be. From there, define three or four scenarios (many companies look at the worst case, expected case, target case and best case) and determine if a decision would be different in any of those cases. Finally, weight the likelihood of each case to determine what decision will be best for the company.
What else can I help you with?
Elaborate the cost concept is important for decision making?
Cost concept for Decision making ?
What is the opposite of opportunity cost and how does it impact decision-making?
The opposite of opportunity cost is benefit or gain. When considering the benefit or gain of a decision instead of the opportunity cost, it can lead to a different perspective on decision-making. This can impact decision-making by focusing more on the potential positive outcomes rather than what is being given up.
Is a higher opportunity cost better in decision-making?
No, a higher opportunity cost is not better in decision-making. It means that the value of the next best alternative is greater, which can make the decision more costly or less beneficial.
What statement accurately describes how costs and benefits are calculated?
Calculations of cost and benefit are based on personal preferences.
What Cost-benefit analysis is similar to?
Basic decision making.
Elaborate the cost concept is important for decision making?
Cost concept for Decision making ?
Role of cost accounting in managerial decision making?
Role of cost accounting in managerial decision making?"
What is the difference between relevant cost and irrelevant cost?
Relevant cost is that cost which is required for the specific decision making process or the cost which will be change due to specific decision while irrelevant cost has no concern with decision making or any specific decision.
Why you afraid in making a decision?
Afraid of making the wrong decision that will cost you a relationship, friendship or a live.
What can a decision-making grid do?
help you determine the oppotunit cost of your decision.
What can decision making grid do?
help you determine the oppotunit cost of your decision.
What is the distinction between relevant cost and irrelevant cost?
Relevant cost is that cost which is necessary for the underlying decision in decision making process while irrelevant cost is not necessary to be decision to be made.
Cost benefit analysis is similar to what?
Basic decision making.
What role does the cost of capital play in the financial decision making of the firms top managers?
What role does the cost of capital play in the financial decision making
How do the cost relationships and behaviors at Guillermo determine decision-making prerogatives for the manager?
How do the cost relationships and behaviors at Guillermo determine decision-making prerogatives for the manager?
How would you describe activity based costing?
Activity-based costing is a form of cost refinement, designed to obtain greater accuracy than traditional allocations in cost assignments for product costing and decision-making purposes.
What is the opposite of opportunity cost and how does it impact decision-making?
The opposite of opportunity cost is benefit or gain. When considering the benefit or gain of a decision instead of the opportunity cost, it can lead to a different perspective on decision-making. This can impact decision-making by focusing more on the potential positive outcomes rather than what is being given up.
