Accounting for decision making: resource constraints and decisions which are mutually exclusive

Abstract

In Chapter 15 we examined the principles of relevant costs and the application of these principles in making accounting decisions. These decisions related to situations where there were no resource contraints and their acceptance or rejection did not affect the demand or production levels of any other products. In practice, however, a decision taken by an organization will often necessitate giving up other opportunities, either because of the lack of resources or because the decision is mutually exclusive (i.e. where the acceptance of one opportunity will mean that others will be rejected). In this chapter we shall be examining decisions where there are resource constraints and the make or buy decision. The make or buy decision is probably the most common type of mutually exclusive decision that confronts organizations.