Chapter 10 Outline

Chapter 10 Outline - RELEVANT COSTING FOR MANAGERIAL...

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RELEVANT COSTING FOR MANAGERIAL DECISIONS- CHAPTER 10 Chapter Outline Notes I. Decisions and Information A. Decision Making 1. Five steps involved in managerial decision making. a. Define decision task. b. Identify alternative courses of action. c. Collect relevant information to evaluate each alternative. d. Select preferred course of action. e. Analyze and assess decisions made. 2. Both managerial and financial accounting information play important role; accounting system provides primarily financial information such as performance reports and budget analyses. 3. Non-financial information is also relevant. B. Relevant Costs 1. Most financial measures from cost accounting systems are based on historical amounts; however, relevant costs, or avoidable costs, are especially useful. a. Sunk cost arises from a past decision; cannot be avoided or changed, and is irrelevant to future decisions. b. Out-of-pocket cost requires future outlay of cash and results from management’s decisions; is relevant. c. Opportunity cost is potential benefit lost by taking specific action when two or more alternative choices are available; consideration is important. This is the Chapter Outline as found in the relevant chapter of the solutions manual of Managerial Accounting / John J. Wild, Ken W. Shaw. --3rd ed.; McGraw-Hill/Irwin. You may use it as a study tool.
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2. Relevant benefits are additional or incremental revenue generated by selecting a particular course of action over another; relevant to decision-making. II. Managerial Decision Scenarios treat each decision task discussed below as separate from each other. A. Additional Business 1. Effect on net income must be considered when deciding whether to accept or reject an order; reject if loss results. 2. Historical costs are not relevant to this decision. 3. Incremental or additional costs (also called differential costs ) are additional costs incurred if company pursues certain course of action; relevant to this decision.
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RELEVANT COSTING FOR MANAGERIAL DECISIONS- CHAPTER 10 Chapter Outline Notes 4. Minimum acceptable price per unit can be
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