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Incremental Analysis

Incremental Analysis

ASIA’S CAR TROUBLE

The perfect market. That’s how the world’s carmakers viewed Asia until just a few months ago. Rising incomes, hundreds -t millions of potential buyers-the ingredients seemed in place for the biggest car buying binge in automotive history. The Japanese, Europeans, Americans, and Koreans a/l rushed to get in on the bonanza b fore it was too late

It’s time to rethink strategies. Both Ford and General Motors Corp. want to win a 10% share of Asia’s market in the next decade or so. Local production is a must.

THE CHALLENGE OF CHANGING MARKETS

Short-run business decisions are inherently different from future-oriented. long-run strategic plans. Short-run decillions are made with a fixed set of resources and must meet the demands of the current marketplace. There is no time of create demand or acquire a
ignificantly different resource base. Organizations engage in long-run strategic planning and short-run decision making simultaneously. Automobile companies in Asia must decide on day-to-day operations in addition to planning how to capture market share over the next 10 years. Ford must meet the price cut of the Volkswagen Santana to remain competitive in the current market and simultaneously decide its future strategic direction in Asia.

This chapter is focused on short-run decisions sometimes referred to as incremental decision making. We focus on common concepts used for short-run decisions such as sunk costs. opportunity costs. out-of-pocket costs. and incremental costs and revenues. These concepts are illustrated in several universal business decision settings and are in- the end in a number of different types of decisions: special order decisions. product mix decisions. -nakc or buy decivions. and joint product decisions. We begin with a very simple lUt familiar decision setting to allow you to become familiar with the ideas and terminology.

Posted on November 24, 2015 in Incremental Analysis

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