BMGT221 Chapter 8 Review

BMGT221 Chapter 8 Review - BMGT221 A. B. G. Pfeiffer...

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BMGT221 G. Pfeiffer Chapter 8 A. How Do Managers Make Decisions? o Management accountants help gather and analyze relevant information to compare alternatives a. Also help with follow up o How Managers make decisions: a. Define Business Goals b. Identify alternative courses of action c. Gather and analyze important information – compare alternatives d. Choose best alternative e. Implement decision f. Follow up – compare actual results with the results anticipated Relevant Information o Relevant Information: a. Is expected future data b. Differs among alternatives o Only Relevant Data affects decisions Relevant Nonfinancial Information o Relevant nonfinancial information has the same characteristics as relevant financial information: a. Is expected future data b. Differs among alternatives o Examples: a. Outsourcing b. Weather c. Laying off employees Keys to Making Short-Term Special Decisions o Relevant information approach (incremental analysis approach) o How operating income would change or differ under each alternative o 6 Kinds of decisions: a. Special sales orders b. Pricing c. Dropping products, departments and territories d. Product mix e. Outsourcing f. Selling as is or processing further o Two keys to making short-term special decisions: a. Focus on relevant revenues, costs, and profits b. Use a CM approach that separates variables costs from fixed costs Must be analyzed separately because they behave differently B. How do Managers Make Special Order and Regular Pricing Decisions? Special Sales Orders Decisions o Occur when a customer requests a one-time order at a reduced sales price a. Usually for larger quantities 1
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2 o Special Order Considerations: o Example: a. ACDelco sells oil filters for $3.20 each. A company has offered them $35,000 for 20,000 filters ($1.75 per filter) b. The sale will: Use capacity that would otherwise be idle Not change fixed costs Not require any variable nonmanufacturing expenses Not affect regular sales c. The only concern not addressed – is the special sales price high enough to cover the variable manufacturing costs associated with the order? The CM income statement shows the variable manufacturing cost per unit is $1.20 – the special order will have a positive CM of $0.55 per unit o Decision Rule for Special Orders a. Accept the Special Order if - expected increase in revenues exceeds expected increase in variable and fixed costs
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This note was uploaded on 04/03/2012 for the course BMGT 221 taught by Professor Pfeiffer during the Fall '08 term at Maryland.

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BMGT221 Chapter 8 Review - BMGT221 A. B. G. Pfeiffer...

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