Some alternatives choices for decision making are:
- Drop or Continue decision
- Special Offer/Order decision
- Make or Buy decision
Drop or Continue decision:
A drop-or-continue decision is defined as the alternative choice for decision making that involves determining whether a business segment, product line, or service should be discontinued or continued.
- This decision is typically based on profitability and relevance to the overall business.
- Managers consider whether the segment is covering its variable costs, contributing to fixed costs, and adding to the company’s overall profit.
Special Offer/Order decision:
A special offer or order decision is defined as the alternative choice for decision making that involves deciding whether to accept an order at a lower-than-normal price, often for a one-time transaction or for a new customer.
- This type of decision is typically relevant when a business has excess capacity and can accommodate the special order without affecting regular production.
- The main goal is to determine whether the contribution margin from the special order will cover the incremental costs.
Make or Buy decision:
A make-or-buy decision is defined as the alternative choice for decision making that involves deciding whether a company should produce a component within the organization or purchase it from an external supplier.
- This decision is based on cost, quality, and resource availability.
- Companies often evaluate this when they need to control costs, allocate resources efficiently, or maintain control over quality and lead times.
