Ch 14 FA

Managerial Accounting: Creating Value in a Dynamic Business Environment

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Ch 14 Chapter Overview I. The Decision-Making Process  A. 6 Steps in the decision process Clarify the problem Specify the criterion Identify the alternatives Develop a decision model Collect data Select alternative B. Quantitative versus qualitative information C. Factors to consider:  relevance, accuracy, and timeliness II. Relevant Information  A. General features Cost or benefit relates to the Future Cost or Benefit differs between alternatives B. Irrelevant Costs Sunk costs Current Book value of equipment C. Differential costs D. Opportunity costs III. Special Decision Situations  A. Accept or Reject Special orders Excess capacity: Focus on variable costs No Excess capacity: Focus on variable costs + Opportunity cost B. Outsourcing (Make or Buy) a product or service  C. Add or drop a service, product, or department   Focus on Avoidable Costs D. Joint products: sell or process further 
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Unformatted text preview: Joint cost is not a relevant cost Relevant: Incremental revenue and separable processing costs 1 E. Allocation of limited resources Contribution margin per unit of scarce resource F. Management Strategies for relaxing a constraint by expanding capacity: a. Outsourcng b. Parallel processing c. Working Overtime d. Retraining e. Eliminating non value added activities G. Uncertainty a. Sensitivity analysis b. Expected values IV. Activity-Based Costing and Decision Making V. Other Issues in Decision Making A. Conflict between decision making and performance evaluation B. Short-run versus long-run decisions Time value of money is critical when considering Long term decisions C. Pitfalls to avoid Sunk costs Unitized Fixed costs Allocated Fixed costs Overlooking Opportunity costs VI. Appendix: Linear Programming 2...
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Ch 14 FA - Joint cost is not a relevant cost Relevant:...

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