Opportunity Costing Decision Heuristics for Product Acceptance Decisions

Full-cost heuristics have been proposed as proxies for opportunity costs in order acceptance decisions. We continue this investigation by considering the effect of different levels of stochastic product demand, lead-time allowances, variations in product cost structure, and the balance of workstation capacity, on the efficacy of the full-cost heuristic compared to other accounting based heuristics. We use simulation to consider a common job shop where order arrivals are stochastic and capacity acquisition takes place prior to demand realization. We find that the full-cost heuristic performs well when lead-time allowances are long and the shop is balanced. However, deviations from these conditions can lead to a reduction in its usefulness and better performance by other accounting heuristics.