ch05s - ManagementAccounting InformationforActivity...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Management Accounting  Information for Activity  and Process Decisions Chapter 5
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Evaluation of Financial Implications  Managers must evaluate the financial implications of decisions that require trade-offs between the costs and the benefits of different alternatives Financial information about the different types of costs form the basis of decisions about the organization’s activities and processes
Background image of page 2
3 Relevant Costs and Revenues Whether particular costs and revenues are relevant for decision making depends on the decision context and the alternatives available Relevant costs - costs and revenues that differ across the decision alternatives
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Relevant Costs Opportunity costs by definition are relevant costs for any decision The costs that remain the same regardless of the alternative chosen are not relevant for the decision
Background image of page 4
5 Sunk Costs are Not Relevant Sunk costs often cause confusion for decision makers Costs of resources that already have been committed and no current action or decision can change Not relevant to the evaluation of alternatives because they cannot be influenced by any alternative the manager chooses
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 Keep or Replace the Old Machine? Keep or Replace the Old Machine? Original cost Original cost $10,000 $10,000 $8,000 $8,000 Useful life in years Useful life in years 10 10 4 4 Current age in years Current age in years 6 6 0 0 Useful life remaining in years Useful life remaining in years 4 4 4 4 Accumulated depreciation Accumulated depreciation $ 6,000 $ 6,000 0 0 Book value Book value $ 4,000 $ 4,000 N/A N/A Disposal value (in cash) now Disposal value (in cash) now $ 2,500 $ 2,500 N/A N/A Disposal value in 4 years Disposal value in 4 years 0 0 0 0 Annual cash operating costs Annual cash operating costs $ 5,000 $ 5,000 $3,000 $3,000 Old Old Machine Machine Replacement Replacement Machine Machine
Background image of page 6
7 Relevance of Equipment Data Relevance of Equipment Data     Book value of old equipment Book value of old equipment     Disposal value of old equipment Disposal value of old equipment     Gain or loss on disposal Gain or loss on disposal     Cost of new equipment Cost of new equipment A sunk cost is a cost already incurred and is  A sunk cost is a cost already incurred and is  irrelevant to the decision-making process. irrelevant to the decision-making process.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Relevance of Equipment Data Relevance of Equipment Data The book value of old equipment is irrelevant  The book value of old equipment is irrelevant  because it is a past (historical) cost. because it is a past (historical) cost. Therefore, depreciation on
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/16/2010 for the course ECN 5050 taught by Professor Yamashita during the Spring '10 term at Nova Southeastern University.

Page1 / 38

ch05s - ManagementAccounting InformationforActivity...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online