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367 Chapter 11 Lecture Notes Chapter theme: Making decisions is one of the basic functions of a manager. To be successful in decision making, managers must be able to tell the difference between relevantand irrelevantdata and must be able to correctly use the relevant data in analyzing alternatives. The purpose of this chapter is to develop these skills by illustrating their use in a wide range of decision-making situations. I.Cost concepts for decision makingLearning Objective 1: Identify relevant and irrelevant costs and benefits in a decision. A.Identifying relevant costs andbenefitsi.A relevant costis a cost that differs between alternatives. 1.An avoidable costis a cost that can be eliminated in whole or in part by choosing one alternative over another. Avoidable costs are relevant costs. Unavoidable costs are irrelevant costs. ii.Two broad categoriesof costs are never relevantin any decision: 1.A sunk costis a cost that has already been incurred and cannot be avoided regardless of what a manager decides to do. 1 3 4 2
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