Agriculture Reference
In-Depth Information
12
Tools for evaluating operating
decisions
Objectives
•
Understanding the decision-making process and how it may be used to solve manage-
ment problems
•
Explain variable and fi xed costs and their relationship with business volume and
profi t
•
Learn to calculate the breakeven point for a fi rm
•
Apply volume-cost analysis techniques to important agribusiness operating decisions
•
Discuss alternative strategies to reduce a fi rm's breakeven point
•
Evaluate pricing decisions within the agribusiness fi rm and estimate the impact of a
price reduction on the breakeven point
Introduction
Effective decision-making is a critical talent of the successful food and agribusiness man-
ager. Regardless of which commodities, services, products, and activities an agribusiness
focuses on, the manager of that organization is faced daily with myriad decisions to be made
at many different levels. Those decisions can range from where to order lunch for the staff
meeting, to determining where the next production facility should be built. And it is the
manager's responsibility to make effective, timely and sound decisions for the ultimate good
of the business.
Professional managers approach this decision-making activity systematically. The proc-
ess of decision-making involves identifying the problem, summarizing facts, identifying and
analyzing alternatives, making a decision, taking action and evaluating results. This chapter
examines some of those critical decision-making steps and the tools used to facilitate
the process. Our focus in this chapter is on operating or shorter-term decisions. In the next
chapter, we turn our attention to longer-term investment decisions.
Perfect Pallet
The Perfect Pallet company has grown steadily over the past decade and management has
been pleased with its record of performance. Recently, however, the business had been sold
to an international food company. As the new owners assumed control, they have begun to
apply pressure for better performance and a higher return on their investment. Sandy Johnson,
the newly appointed general manager at Perfect Pallet, is struggling with all kinds of ques-
tions, alternatives, and ideas for improving profi ts. Although she has some good accounting
