Ch 7 Class Notes

Ch 7 Class Notes - 1 Keep the old machine vs replace with a...

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Ch 7 Class Notes Thursday, March 24, 2011 3:22 PM Decision Making/Incremental Analysis 2 Underlying Concepts: 1. Relevant Cost: Pertains to the future AND differs between/among alternatives 1. Direct Costing Income Statement Sales -VC CM -FC Profit Six Things We Will Do: 1. Make or Buy (insource or outsource) 1. Special Deals 1. Joint Costs Maximize contribution margin permit of constraining resource - "selection of most profitable product" 1. Continuing or discontinuing a product line If contribution margin is positive, keep the product line
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Unformatted text preview: 1. Keep the old machine vs. replace with a new machine 2. Pricing Make or Buy (p. 97 course pack) • Fixed OHD unless we are told otherwise, is irrelevant for decision making purchases How to do Division Problems: Sales-VC CM-Direct (Controllable) Fixed Costs Segment (Controllable) Margin MAKE DECISION BASED ON THIS.-Allocated (Indirect FC) Profit **if segment margin is positive, you should keep that division...
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