_3_CHAPTER_11

_3_CHAPTER_11 - CHAPTER 11 Decision Making and Relevant...

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CHAPTER 11 Decision Making and Relevant Information
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Making Decisions Should we buy a part or produce it? Should we reduce prices to sell more products? Which vendor should we select? Etc.
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Decision Model A formal method of making a choice, often involving both qualitative and quantitative analyses. Offers consistency in decision making process Management accountants provide necessary data
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Decision Model - Example Precision Sporting Goods is considering reorganizing its manufacturing operations. Should they reorganize or not? Precision uses a five-step decision model Exhibit 11-1
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Decision Model To accurately employ a decision model, we must understand costs. Relevant Costs Expected future costs that differ among the alternative courses of action We are not concerned with costs in the past (sunk costs) We are not concerned with costs that are the same among alternatives Relevant Revenues Expected future revenues that differ among the alternative courses of action We are not concerned with revenues in the past We are not concerned with costs that are the same
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Decision Model Should Precision reorganize? Quantifying Precision’s decision model Exhibit 11-2 Details process with all data Details process with only relevant data
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Decision Model The decision model Precision uses focuses on quantitative data (can be expressed numerically) However, Precision must also weigh qualitative data (cannot be expressed numerically)
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_3_CHAPTER_11 - CHAPTER 11 Decision Making and Relevant...

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