ptofit and loss account4 PROFIT PLANNING: OPERATING DECISIONS, MULTIPLE PRODUCT

May 13th, 2015
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CHAPTER 5PROFIT PLANNING:OPERATING DECISIONS, MULTIPLE PRODUCTSPERSPECTIVEThis section is concerned with the estimation of costs and revenues for operating decisions. A working interpretation of "operating decisions" is that capital investment is little affected by such decisions. That is, new investment is not a material component of the operating decision under consideration. Operating decisions are made based on their effects on costs, revenues, cash flow or profitability, without regard to investment levels. Operating (OPR) decisions are the day-to-day decisions needed to implement the tactical, strategic, and long-run plans of an organization. Operating decisions tend to: (1) be repetitive, (2) have effects that are limited in scope, and (3) be reversible.THE MAJOR POINTSOperating decisions can be difficult because they are unstructured. There are no rules or procedures that specify the analysis steps. However, there is a strategy that provides an outline of an approach that you can use to analyze operating decisions. Being familiar with the activities, processes and markets involved in a decision choice is crucial to the financial analysis.First, clearly identify the decision alternatives at hand. The objective is to analyze the revenues and costs of each alternative so you can recommend one. Because the analysis depends on the choices available, you simply must start with a clear understanding of each alternative. Returning to the past is sel

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