Cost Management Cost information is required both for short – term and long – run managerial problems. Differential costs are of particular use in short – term problems which are non – repetitive, one time, and ad – hoc problems. The following are the most common short – term problems and areas where differential cost analysis may be deployed (ICAI, 2014). 1. Accept – or – reject special order decisions.
2. Make – or – buy decisions.
3. Sell – or – process decisions.
4. Reduce – or – maintain price decisions.
5. Add – or – drop product decisions.
6. Operate – or shut down decisions.
If Economic Order Quantity and safety stock are well balanced that will minimize the total costs. The term wastage
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With particular emphasis on the hospital sector, the findings and observation show there is a strong movement in the manner in which the hospital profitability has been flowing. The overall pattern of development of the firm has been from a remote low to a considerable profit avenue. In respect of the movement we can see that the firm has developed itself with respect to the revenue. It is a very well known fact that as the firm progresses and develops the overall revenue increases along with. With the kind of industry the firm is in, which is primarily of service nature, the overall cost of services is relatively low, i.e. to say that the firm has a good contribution margin. It is the high magnitude of the fixed costs and other relative costs which has a major bearing on the profitability and which relatively makes the hospital unprofitable. In consideration of the same, it can be said that the firm is required to develop its revenue, and that is what exactly the hospital under consideration did. Over the years it focused on increase of revenue instead of reduction of cost. One must remember that reduction of costs leads to decrease in the quality of services which is offered to the client. The firm may instead focus on improvement in the revenue which the firm is earning. With