Recommendations: calculation, evidence and limits
A defensible recommendation states the action, cites the calculation and relevant case facts, and names the assumption that could change the answer. Distinguish a numerical result from a business judgment, and answer in the format the task requests.
State the switching condition
- Compare alternatives
- Use only costs and benefits that change between the options.
- Show the boundary
- Calculate the price, volume or assumption that reverses the conclusion.
- Qualify the action
- State the operational constraint and evidence to monitor.
A recommendation is stronger when the reader can see when it would stop being valid. This is not an official scoring rubric.
See the decision
A make-or-buy recommendation with a switching value
Annual demand is 10,000 units. Making costs $14 variable per unit plus $30,000 avoidable fixed costs. Buying costs $18 per unit. No alternative use of capacity, quality difference or other cost is assumed.
USD annual relevant cost
- Make$170,000
- Buy$180,000
Recommend making at 10,000 units, subject to the stated capacity and quality assumptions. Reconsider if the supplier price falls below $17 or demand falls below 7,500 units with the same avoidable fixed cost.
How to apply these ideas
1. State the decision
Identify the alternatives and the requested recommendation.
An investment ranking, a sourcing choice and an ethical response require different evidence. Write the decision in one line before working. This prevents a technically correct calculation from answering a different question.
Watch for: Explaining a formula when the task asks which alternative to choose.
2. Use relevant evidence
Connect the number to the exact alternative.
Show the relevant cash flows, capacity constraints or professional obligations. Label units and the time horizon. A recommendation should cite the driver that changes the choice, not just repeat the final total.
Watch for: Using an unrelated ratio as support for the decision.
3. Test the switch
Find the assumption that would reverse the conclusion.
A sensitivity or break-even calculation can show how much room the recommendation has. Keep uncertainty distinct from missing information. If a crucial fact is absent, state the condition rather than inventing it.
Watch for: Describing a narrow advantage as robust under every scenario.
4. Write concisely
Use action, reason and condition in that order.
For written tasks, a short paragraph with the relevant calculation and limitation is often clearer than a list of memorized concepts. For structured responses, provide the requested value or selection. This is a teaching method, not an official scoring formula.
Watch for: Claiming a specific sentence structure guarantees credit.
Study the topic
Recommendations: calculation, evidence and limits: explanations and applications
Write a Part 2 recommendation that follows from an incremental calculation, states its assumptions and identifies a switching condition. The response method complements the decision-analysis guide.
By MiloPrep editorial team. Original teaching explanations and illustrative cases; official curriculum references are listed below.
Name the alternatives before comparing the numbers
Define what management can choose and the period affected. “Make versus buy for the next year at 10,000 units” is a different question from whether to close a plant permanently. The options determine which costs, benefits and commitments change. Keep the time horizon visible throughout the answer.
List relevant inputs and explain exclusions that could otherwise confuse the reader. A past machine purchase is sunk, while its current sale value can be an opportunity cost. A fixed salary may be unavoidable for the year even if it is assigned to the product. Use the case facts rather than broad rules such as “ignore fixed costs.”
Show a compact, reproducible comparison
Use one table with comparable cost or cash-flow definitions. Separate per-unit amounts from annual totals and show the volume multiplier. For a make-or-buy choice, a decision table should identify avoidable fixed costs, purchasing costs, transition costs and any alternative use of capacity. The reader should be able to reproduce the result without guessing which costs were included.
After finding the numerical advantage, interpret it in ordinary language. “Making costs $10,000 less under the stated assumptions” is clearer than an unexplained negative number. Keep qualitative concerns tied to the decision: quality, service, supplier dependence and reversibility can alter the choice, but a generic list of risks does not explain how.
| Element | Concrete content | Purpose |
|---|---|---|
| Action | Choose A at the stated volume and horizon | Answers the decision |
| Numerical basis | A has $X lower relevant cost or higher NPV | Shows the economic reason |
| Assumptions | Which costs are avoidable and capacity is available | Defines when the result holds |
| Switching condition | Price, volume or risk threshold that changes the ranking | Makes uncertainty actionable |
| Next verification | Specific contract, quality or demand evidence | Turns the answer into a decision process |
State what would reverse the recommendation
Solve for the price or volume at which the alternatives are equal, when the model permits it. A supplier break-even price can be found by dividing the comparable make cost by units, after adjusting for other buying costs and opportunity benefits. A volume threshold comes from equating the two total-cost functions.
Do not imply that a threshold is exact when inputs are uncertain or costs change in steps. If crossing the threshold requires new capacity, a different supplier tier or a change in quality, rebuild the model for that region. Close with the evidence required before commitment, rather than presenting a conditional teaching calculation as an unconditional business instruction.
Work it through
Worked example: A make-or-buy recommendation with a switching value
Annual demand is 10,000 units. Making costs $14 variable per unit plus $30,000 avoidable fixed costs. Buying costs $18 per unit. No alternative use of capacity, quality difference or other cost is assumed.
| Alternative | Annual relevant cost |
|---|---|
| Make: 10,000 × $14 + $30,000 | $170,000 |
| Buy: 10,000 × $18 | $180,000 |
| Advantage of making | $10,000 |
- 1
Making is $10,000 cheaper under the given assumptions.
- 2
At 10,000 units, the supplier price that makes the options equal is 170,000 / 10,000 = $17 per unit. Alternatively, equal cost at $18 occurs at 30,000 / (18 - 14) = 7,500 units.
Recommend making at 10,000 units, subject to the stated capacity and quality assumptions. Reconsider if the supplier price falls below $17 or demand falls below 7,500 units with the same avoidable fixed cost.
Work through the alternatives
More worked cases: recommendations: calculation, evidence and limits
Original teaching scenarios. Each case states its assumptions, shows the working and explains the limits of the conclusion.
A capacity opportunity can reverse a make-or-buy answer
Annual demand is 8,000 units. Making costs $15 variable per unit plus $24,000 avoidable fixed cost. Buying costs $19 per unit. Buying also frees capacity that can generate $18,000 annual contribution, with no other costs or risks assumed.
| Alternative or adjustment | Relevant annual amount |
|---|---|
| Make cost: 8,000 × $15 + $24,000 | $144,000 |
| Buy cost: 8,000 × $19 | $152,000 |
| Contribution from released capacity | -$18,000 against buying cost |
| Net economic cost of buying | $134,000 |
| Advantage of buying | $10,000 |
- Without the alternative use, making is $8,000 cheaper. Including the $18,000 contribution makes buying $10,000 better.
- The supplier price that makes buying equal to making satisfies 8,000P - 18,000 = 144,000, so P = $20.25.
- Recommend buying at $19 only if the $18,000 alternative contribution and equivalent supplier quality are credible. Verify the capacity opportunity and contract terms.
What the result means: The recommendation changes because of a real opportunity, not because common overhead was reallocated. The $20.25 switching price makes the price assumption explicit.
Practice this topic
Check your understanding
Try each short application before opening its explanation. These are original learning checks, not official exam questions or a score prediction.
1. Making costs $12 variable per unit plus an allocated $5 fixed charge. Buying is $15. The fixed total will remain either way and no alternative use exists. Which is cheaper per unit?
Show answer and explanation
Making by $3.
Compare $12 incremental manufacturing cost with $15 buying cost. The unchanged allocation does not disappear.
2. A supplier price is only $0.10 below the calculated switching price, and quality cost has not been measured. Is an unconditional buy recommendation justified?
Show answer and explanation
No.
The small modeled advantage could be erased by the missing cost. State the conditional result and obtain the quality evidence before commitment.
Questions about recommendations: calculation, evidence and limits
- Should every recommendation include a long list of caveats?
- No. Include the material assumption that could change the decision and any constraint explicitly supplied by the case. Generic caveats dilute the explanation.
- Is this an official CBQ or essay rubric?
- No. It is an independent method for organizing evidence. Follow the official instructions and the format applicable to your booked sitting.
Sources and scope
Curriculum mapping: Part 2, Section C, Business Decision Analysis. The official outline assigns 25% to the entire domain, not to this individual technique. These are selected study notes, not complete curriculum coverage.
Official curriculum references establish scope and expected skills. The explanations, diagrams and numerical cases are independent teaching material from MiloPrep, not official questions or source-validated solutions. Curriculum references checked 2026-10-10.
- IMA Content Specification Outlines (effective September 2024) ↗
Supports: Part 2, Section C, beginning on printed page 11. Domain names, weights and curriculum boundaries.
- IMA Learning Outcome Statements (effective September 2024) ↗
Supports: Part 2 C.2.i-n: make-or-buy and recommendations; printed page 24. Curriculum scope, not verification of this original worked example.
- IMA CMA Handbook (March 2026) ↗
Supports: Exam administration and the scenario-format transition; the older outline is used for curriculum scope, not current format.
Independent US CMA study material. Not affiliated with or endorsed by IMA. This covers management accounting, not medical-assistant certification or the separate ICMAI qualification.