Discuss how fixed costs and resources constraints might be tackled within short term decision making. Illustrate your answer with examples.
It is widely unavoidable that fixed costs and resources constraints are issues that each and every company has to deal with, on a day to day basis. On the one hand fixed costs are considered the costs which remain constant either the level of sales goes up or down. Rent, wages and salaries and insurance are some characteristically examples of fixed costs. On the other hand resources constrain are elements which contribute to the obstruction of the company’s production plans like the limited storage space, machine hours, labour time, raw materials or lack of funds. Both of these two aspects are associated with short term decision making. What is short term decision making and how fixed costs and resources constraints might be tackled within it, are matters that I am going to analyze and briefly explain below.
First of all it is commonly known that a business is confronted every day with numerous issues that have to end up with a decision. For instance “whether to make components itself or buy them in, whether to accept or reject an order, whether to further process a product or sell it at its split-off point or how to best use resources when one or more of them becomes scarce.” (Docstoc, 2010). Nevertheless, in order a company to go ahead with the right decisions, it must take into account the relevant costs. Relevant costs are regarded as those which will be generated in the future. Subsequently, in most cases fixed costs are considered to be disrelated with short term decision making, on the grounds that whichever option will be choosed, the costs will remain constant. Fixed costs are “business expenses that are not dependent on the activities of the business” (Wikipedia, 2007).
Though just like each and every rule maintains its own exception, simultaneously there is one here too. If a fixed cost is increased or incurred...