notes-c13 - C 13 - RELEVANT COSTS FOR DECISION MAKING...

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1 C 13 - RELEVANT COSTS FOR DECISION MAKING notes-c13.doc Written by Professor Gregory M. Burbage, MBA, CPA, CMA, CFM © CHAPTER LEARNING OBJECTIVES: MAJOR: - Distinguish between relevant and irrelevant costs. - Use relevant information to determine the following: - Retain or drop a product, product line or segment. - Make or buy needed assets. - Accept or reject a special order. - Best utilization of scarce resources. - Sell or process further. Sunk Cost - a cost that has already been incurred, or committed to, and can’t be changed by any “ethical” decision made now or in the future. These are not limited by other cost terminology; these could be variable or fixed, period or product, direct or indirect, etc. Cost of old equipment and any allocated cost there from, for example, depreciation, is always a sunk cost. Any commitment for future payments under a contract or other agreement is also sunk, in regards to not being able, ethically, to change that cost. Relevant Cost or Revenue (a.k.a. avoidable, differential, incremental, changeable) - a cost or revenue applicable to the particular decision being made.
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This note was uploaded on 01/13/2012 for the course ACCT 222 taught by Professor Staff during the Spring '11 term at Los Rios Colleges.

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notes-c13 - C 13 - RELEVANT COSTS FOR DECISION MAKING...

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