041210_for_posting_v2003

041210_for_posting_v2003 - EXAM III (Final) Tuesday, May 4,...

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EXAM III (Final) Tuesday, May 4, 2010 8-10 pm, room to be announced. Mark your calendars. Do not make plane reservations to leave town before this date. Topics to be covered: CH 11 Segment Reporting and Decentralization (App 11-A, not App 11-B) CH 12 Relevant Costs for Decision Making CH 13 Capital Budgeting and Time Value of Money (App. 13-A, B, C) Kattelus-Spring 2010 1
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Kattelus - Spring 2010 2 CH 12 Relevant Costs for Decision Making Key questions for managers: q Drop this segment or retain it? q Make or buy this component part? q Accept a special order? q Scrap a product or rework it? q Replace equipment? q Use a constrained resource (how much)? q Continue to process joint products after the split- off point?
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Relevant Costs Relevant costs are incremental , differential , marginal , and therefore, avoidable . They can be eliminated by choosing one alternative over another. Opportunity costs are relevant, but just difficult to measure. Irrelevant costs are those that are unavoidable , for example, sunk or future costs. These costs do not differ between Kattelus - Spring 2010 3
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Approaches Kattelus - Spring 2010 4 Management is considering a new labor saving machine that rents for $3,000 per year. Data with and without the new machine are: Current Situation Situation With New Machine Differential Costs and Benefits Sales (5,000 units @ $40 per unit) 200,000 $ 200,000 $ Less variable expenses: Direct materials (5,000 units @ $14 per unit) 70,000 70,000 Direct labor (5,000 units @ $8 and $5 per unit) 40,000 25,000 15,000 Variable overhead (5,000 units @ $2 per unit) 10,000 10,000 Total variable expenses 120,000 105,000 Contribution margin 80,000 95,000 15,000 Less fixed expense: Other 62,000 62,000 Rent on new machine - 3,000 (3,000)
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This note was uploaded on 10/17/2011 for the course ECON 101 taught by Professor Thompson during the Spring '11 term at Michigan State University.

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041210_for_posting_v2003 - EXAM III (Final) Tuesday, May 4,...

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