atkinson5e_ch05

atkinson5e_ch05 - ManagementAccounting...

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  Management Accounting  Information for Activity  and Process Decisions Chapter 5
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  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
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  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
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  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
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  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
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  6 Relevant Costs for the Replacement of a  Machine Should Bonner dispose of the USC machine it just purchased on September 1 and buy the new machine from Teo Company? What costs are relevant for this decision?
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  7 Relevant Costs for the Replacement of a  Machine Sunk costs $30,000 cost of old machine $5,200 monthly loan payment for old machine
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  8 Relevant Costs for the Replacement of a  Machine Cost increases and cash outflows: $50,000 down payment on the new machine $6,000 monthly lease payments on new machine
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  9 Relevant Costs for the Replacement of a  Machine Cost Savings and Cash Inflows $50,000 disposal of old machine $6,200 monthly cost savings: $4,400 labor $1,000 materials $800 maintenance
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  10 Assuming Responsibility for Decision Reversing a decision made a month earlier may look like an error If the manager does not purchase the new machine, his behavior may be viewed as suboptimal The manager may garner respect by assuming responsibility for error Manager needs to recognize sunk costs
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  11 Make-or-Buy Decisions As managers attempt to reduce costs and increase the competitiveness of their products, they face decisions about whether their companies should Such make-or-buy decisions illustrate how to identify relevant costs and revenues
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12 Make-or-Buy Decisions – Example Std. Rear Std. Front Multicolor Curved Product cost per unit: Direct materials $ 36 $ 49 $ 56 $ 58 Direct labor 22 25 24 28 Unit-related support 14 16 18 20 Batch-related support 10 16 19 22 Product-sustaining overhead 6 12 14 19 Facility-sustaining overhead 8 10 11 14 Total manufacturing costs $ 96 $ 128 $ 142 $ 161 Bids from outside suppliers: Lowest bid $ 82
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atkinson5e_ch05 - ManagementAccounting...

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