Add or Drop Decision: need to analyze the incremental impact on profits of adding or dropping the product / service / department need to consider; O are any of the fixed costs avoidable o does it impact the sales of existing products / services o are there other alternative ways to use the space should add or drop the product only if the profit would increase . profits only increase if fixed costs savings exceed the lost contribution margin Steps: 1. Pull out all of the relevant information. 2. Calculate each relevant piece of information. 3. Combine the calculations to finalize your answer. Scarce Resource Decision: . occurs when a resource is used in multiple products but is only available in limited quantities . need to determine which product to produce first (which are the most profitable) . calculate the contribution margin that is generated for every unit of the scarce resource allocated to each product profitability is maximized by allocating the scarce resources to those products that are the most profitable (i.e. those whose CM per Unit is the highest) Steps: 1. Determine if there actually is a scarce resource. 2. Calculate the CM for each product / Calculate the CM per constraint resource and rank them based on profitability 3. Calculate how much to produce (maximize profits by meeting the demand for products with the highest CM first) 4. Allocate resources so we can fully produce the most profitable products.The Sell or Process Further Decision: 0 joint process of making a product results in two or more outputs; 0 can he sold at the split 0E point 0 can processed further and sold at a higher price (uSually with a cost though} 0 decision is whether to process the product further or to sell them at the split all" point 0 joint costs are irrelevant in decisions regarding what to do with a product from the split off point forward Steps: 1. Calculate the incremental revenues of processing further (revenues obtained after processing further - revenues of selling the product as is} 2. Compare this amcmnt no the Cost of Pmcessing Further. 3. 1f the incremental revenue is greater than the cost to process further, you process the product further