PWRPT C11 Relevant Cost

PWRPT C11 Relevant Cost - Click to edit Master subtitle...

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Unformatted text preview: Click to edit Master subtitle style Chapter 11 Relevant Information for Special Decisions What is real and what is not? Click to edit Master subtitle style Decision-Making Model 1. Define the problem 2. Identify the alternatives 3. Identify the costs and benefits associated with each feasible alternative 4. Total the relevant costs and benefits for each alternative 5. Assess the qualitative factors 6. Select alternative with the greatest benefit Click to edit Master subtitle style Decision-Making Model (pp 464 -465) 1. Identify the decision 2. Identify the alternatives and their associated relevant costs 3. Make the decision Relevant Information Two Characteristics 1. Relevant information differs among the alternatives under consideration. 2. Relevant information is future oriented. Different Ways to Look at Numbers Most chapters : We put all DM, DL, and OH costs (product costs) into inventory & we expensed period costs. This is full or absorption costing & is C 2&3 (and others) : We separated fixed versus variable costswe ignored product vs. period cost labels. This is not GAAP, but is often better for future decisions. Relevant Costs? ( Avalanche Journal , March 11, 2002). False alarms cost the Lubbock Police Department about $255,000 per year More Granularity Needed? Labeling costs as Fixed vs. Variable may not be detailed enough (similar to PASS / FAIL course grades). A more detailed classification system, similar to letter grades, is often helpful. Cost Hierarchy (also used in Chapter 6) Unit-level Activities Batch-level Activities Product-level Activities Facility-level Activities Avoided by eliminating one unit of product. Avoided when a batch of work is eliminated. Avoided if a product line is eliminated. Some costs may be avoided if a product line is eliminated. Example: The Classic Relevant Cost Problem Imagine your business paid $25,000 for a truck....
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This document was uploaded on 10/27/2011 for the course BUSINESS ALL at Texas Tech.

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PWRPT C11 Relevant Cost - Click to edit Master subtitle...

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