NDLI: Optimal lower bounds on the contribution margin in the case of stochastic order arrival

Content Provider	Springer Nature Link
Author	Missbauer, Hubert
Copyright Year	2003
Abstract	In customer order driven production, decisions on the acceptance of customer orders usually have to be based on variable costs and contribution margins (abbreviated CM), since in the short term only these quantities can be influenced. If we assume that customer orders arrive according to a stochastic process and that the decisions on order acceptance have to be made on each order separately, a customer order usually should be accepted only if its contribution margin exceeds a positive lower bound. This paper shows by means of a stochastic model that, under certain assumptions, this lower bound on the contribution margin can be determined using full costing, provided that the available capacity (constant over time) and the arrival process are balanced. This insight justifies, to a certain extent, the use of full costs to support decisions on the short-term production volume, which is a behaviour that can be observed in practice rather frequently. We also demonstrate the extension of the modelling approach to state-dependent lower bounds on the contribution margin.
Starting Page	497
Ending Page	519
Page Count	23
File Format	PDF
ISSN	01716468
Journal	OR Spectrum
Volume Number	25
Issue Number	4
e-ISSN	14366304
Language	English
Publisher	Springer-Verlag
Publisher Date	2003-01-01
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Cost accounting Dynamic pricing Order acceptance Stochastic models Cost allocation
Content Type	Text
Resource Type	Article
Subject	Management Science and Operations Research Business, Management and Accounting

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