Tactical decision making means choosing among alternatives with an immediate or limited end in view. For example, a company may accept a special order for less than the normal selling price to use idle capacity. Tactical decisions tend to be short-run in nature; however, it should be emphasized that short-run decisions often have long-run consequences.

A general tactical decision-making model is outlined here:

1.	Recognize and define the problem.
2.	Identify possible alternative solutions to the problem, and eliminate any unfeasible alternatives.
3.	Identify the costs and benefits associated with each feasible alternative. Eliminate the costs and benefits that are not relevant to the decision.
4.	Compare the relevant costs and benefits for each alternative.
5.	Assess qualitative factors.
6.	Select the alternative with the greatest overall benefit.

Identifying and comparing relevant costs and revenues is the heart of the tactical decision model.

Relevant costs (revenues) are future costs (revenues) that differ across alternatives. (Revenues are treated in the same way as costs, so we will simplify the discussion by referring to costs.)

All decisions relate to the future; so, only future costs can be relevant.

In addition, the cost must differ from one alternative to another. If a future cost is the same for more than one alternative, it has no effect on the decision. Such a cost is an irrelevant cost.

Required:

Assume that Reeves Company is considering accepting a special order for $25 per unit when the normal selling price is $30 per unit. Reeves has enough excess capacity to make the order without displacing normal sales.

1. The alternatives facing Reeves Company are:

a) Accept the special order.

b) Reject the special order.

c) Sell normal sales for $25 per unit.

2. Choose which of the following are relevant in deciding whether or not to accept the special order:

a) $25 price.

b) $30 normal price.

c) Variable cost of making the units in the special order.

d) Depreciation on factory equipment used in making the special order units.

e) Increased property taxes on the factory building which are due while the special order would be made.

While cost and revenue information is important, other information may be needed to make an informed decision. These non-financial factors are termed qualitative and are often relevant in decision making. For example, in deciding whether to make a component in-house or purchase it from an outside supplier, the company may consider any difference in quality or in responsiveness to the company's production schedules.

Answer rating: 100% (QA)

Solution 1 The alternatives facing Reeves Company ar... View the full answer