Chapter 6-BB

Chapter 6-BB - CHAPTER 6 Chapter Outline The Role of...

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Unformatted text preview: CHAPTER 6 Chapter Outline The Role of Accounting in Decision Making Relevant Information Economic Characteristics of Costs Analysis of Special Decisions Special Sales Order Outsourcing Segment Elimination Equipment Replacement The Role of Accounting in Decision Making Designs and implements accounting information system. Managers who make production, pricing, marketing, and finance decisions Make substantive economic decisions affecting operations. Managerial Accountant Relevant Pertinent to a decision problem. Accurate Information must be precise. Timely Available in time for a decision. Information should be 1. Relevant 2. Accurate 3. Timely The Role of Accounting in Decision Making Trade offs? Predominate Characteristic? Two criteria 1. Information must be future oriented 2. Information must have an element of difference among the alternatives. Relevant information is the predicted future costs and revenues that will differ among the alternatives. The Concept of Relevance Relevance Is An Independent Concept Management at Better Bakery Products are debating whether to add a new product, either cakes or pies, to the companys product line. Project costs are shown: Materials (per unit) 1.50 $ Materials (per unit) 2.00 $ Direct labor (per unit) 1.00 Direct labor (per unit) 1.00 Supervisor's salary 25,000.00 Supervisor's salary 25,000.00 Franchise fee 50,000.00 Advertising 40,000.00 Cost of Cakes Cost of Pies Under either alternative a new production supervisor must be hired as a cost of $25,000 per year. Cakes are distributed under a nationally advertised label. Pies are marketed under the companys own name and will require new advertising. Which costs are relevant? Distinguish between product costing, cost behavior, and relevance - Demo Whether a cost is fixed or variable has no bearing on its relevance Relevance is Context-Sensitive A particular cost that is relevant in one context may be irrelevant in another. A department store sells mens, womens, and childrens clothing. The store managers salary could not be eliminated if the store eliminated the line of childrens clothing. Is the store managers salary relevant to the decision to stop selling childrens clothing? No, the store managers salary will be the same if childrens clothing is no longer sold. Relevance is Context-Sensitive A particular cost that is relevant in one context may be irrelevant in another. Would the store managers salary be a relevant cost, if the company was thinking about closing the store completely? Yes, it is a relevant cost. If the store remains open, the company will incur the managers salary. If the store is closed, the cost will be eliminated. Economic Characteristics of Costs Opportunity cost Sunk cost Differential cost Avoidable cost Relevancy of Opportunity Costs The sacrifice represented by a lost opportunity is an opportunity cost....
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This note was uploaded on 02/22/2012 for the course BUAD 2050 taught by Professor Nicholasw.schroeder during the Spring '09 term at Toledo.

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Chapter 6-BB - CHAPTER 6 Chapter Outline The Role of...

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