RelevantCostsRecap - As you can see, management accounting...

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Smeal College of Business Accounting for Decision Making: ACCTG 211 Pennsylvania State University Professor Huddart Relevant Costs Recap Definitions – opportunity cost – sunk cost Schema 1 – Decide on the “currency,” e.g., cash flows to the business unit or items that affect operating income this year or next. – Settle on a convention for representing inflows/(outflows). – Include only items that are relevant for the “currency.” – Either compare one time versus recurring costs or do a full net present value analysis. – Include only items that differ across alternatives, i.e., the differential costs. – Consider qualitative factors. Schema 2 + Incremental Revenue - Incremental Cost - Opportunity Cost = Net Benefit/(Cost) Contribution margin per unit of the constraining factor.
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Unformatted text preview: As you can see, management accounting begins to overlap with operations research and linear programming, which are covered in other core courses. Incentive issues. How do you get your employees to consider the relevant costs? The right thing to do is not necessarily what managers will do. Pitfalls. Common mistakes include: presuming all variable costs are relevant, presuming all xed costs are irrelevant, unitizing xed costs over the wrong volume, and considering an inappropriate time horizon. c Steven Huddart, 20012008. ACCTG 211 Relevant Costs Recap Common situations where relevant cost analysis is useful: make or buy, special order, and product emphasis. Page 2...
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This note was uploaded on 05/29/2008 for the course ACCTG 211 taught by Professor Johnston during the Spring '99 term at Pennsylvania State University, University Park.

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RelevantCostsRecap - As you can see, management accounting...

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