Ch11 - Chapter 11 Lecture Notes Chapter theme Making...

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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 relevant and irrelevant data 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 making Learning Objective 1: Identify relevant and irrelevant costs and benefits in a decision. A. Identifying relevant costs and benefits i. A relevant cost is a cost that differs between alternatives. 1. An avoidable cost is 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 categories of costs are never relevant in any decision: 1. A sunk cost is 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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