5.

11 EVALUATING ALTERNATIVES
ORGANIZATION NEEDS TO
EXAMINE ALTERNATIVES FOR
FUTURE CAPACITY FROM A
NUMBER OF DIFFERENT
PERSPECTIVES.
ECONOMIC CONSIDERATIONS

ECONOMICALLY FEASIBLE
COST

HOW SOON

OPERATING AND MAINTENANCE COST

USEFUL LIFE

COMPATIBILITY WITH PRESENT PERSONNEL AND OPERATIONS

POSSIBLE NEGATIVE PUBLIC OPINION

TECHNIQUES FOR EVALUATING CAPACITY ALTERNATIVES

COST-VOLUME ANALYSIS

FINANCIAL ANALYSIS

DECISION THEORY

WAITING-LINE ANALYSIS
 COST-VOLUME ANALYSIS

COST REVENUE VOLUME OF OUTPUT

ESTIMATE INCOME UNDER DIFFERENT OPERATING CONDITIONS

REQUIRES IDENTIFICATION OF ALL COSTS RELATED TO THE PRODUCTION

FIXED COST- REMAIN CONSTANT REGARDLESS OF VOLUME OF OUTPUT

RENTAL COST TOTAL PER UNIT
PROPERTY TAXES COST
EQUIPMENT COSTS
FIXED CONSTANT VARIES
HEATING AND COOLING EXPENSES COST
CERTAIN ADMINISTRATIVE COST
VARIABLE VARIES CONSTANT
VARIABLE COST- VARY DIRECTLY WITH VOLUME OF OUTPUT COST
MATERIAL AND LABOR COST

TOTAL COST= FIXED COST+ VARIABLE COST

SALES UNIT SALES
(VARIABLE COST) (VARIABLE COST
PER UNIT)
CONTRIBUTION MARGIN UNIT
CONTRIBUTION
MARGIN
(FIXED COST)
NET INCOME
BREAK-EVEN POINT- VOLUME OF OUTPUT AT WHICH THE TOTAL COST AND TOTAL REVENUE ARE EQUAL
VOLUME<BEP LOSS
VOLUME>BEP PROFIT

INDIFFERENCE POINT- QUANTITY THAT WOULD MAKE TWO ALTERNATVES EQUIVALENT