ch12-AFM102s2012

100000 loss managerial accounting the answer lies in

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Unformatted text preview: er lies in the The way we allocate common fixed costs to common our products. our Our allocations can Our make a segment look less profitable than it less really is. really 12-14 Adding & Dropping Segments focus on relevant costs and benefits do not focus on irrelevant costs and benefits contribution margin foregone/lost fixed costs avoided CM lost/gained on other products/segments consider other qualitative factors ignore common fixed costs that will continue to be incurred ignore sunk costs (eg. depreciation, amortization of goodwill, …) watch for opportunity costs Managerial Accounting 12-15 Adding & Dropping Segments Decision Rule: Keep if: CM lost (all products/segments) > fixed costs avoided + CM gained (other products/segments) Drop if: CM lost (all products/segments) < fixed costs avoided + CM gained (other products/segments) Managerial Accounting 12-16 The Make or Buy Decision When a company is involved in more than one activity in the entire value chain, it is vertically integrated. A decision to carry out one of the activities in the value c...
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