MGMT 201: Chapter 14 Notes
MGMT 201: Chapter 14 Notes MGMT 201
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This 2 page Class Notes was uploaded by Zach Weinkauf on Saturday April 30, 2016. The Class Notes belongs to MGMT 201 at Purdue University taught by David Scott in Spring 2016. Since its upload, it has received 39 views. For similar materials see Managerial accounting in Business, management at Purdue University.
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Date Created: 04/30/16
Chapter 14: Decision Making: Relevant Costs and Benefits Decision making is a fundamental part of management. Decision Making: 1. Clarify the Decision Problem 2. Specify the Criterion 3. Identify the Alternatives 4. Develop a Decision Model 5. Collect the Data - Primarily the responsibility of the managerial accountant. - Info should be: 1. Relevant – Pertinent to a decision problem – It Matters. 2. Accurate – Information must be precise – It’s Correct. 3. Timely – Available in time for a decision – It’s now. 6. Make a Decision 7. Evaluate Decision Effectiveness Relevant Information o Information is relevant to a decision problem when: It has a bearing on the future. It differs among competitive alterations. o Sunk Costs – costs that have already been occurred. They do not affect any future cost and cannot be changed by any current or future action. Sunk costs are irrelevant to decisions. Accept or Reject a Special Order o With Excess Capacity – Relevant costs will usually be the variable costs associated with the special order. o Without Excess Capacity – variable costs + the opportunity cost of using the firm’s facilities for the special order are also relevant. Unavoidable vs. Avoidable Expenses o Unavoidable expenses – expenses that will continue to be incurred even if a subunit or activity is eliminated. o Avoidable expenses – expenses that will no longer be incurred if a particular action is taken. Variable Expenses are always avoidable. Split-Off Point – the point in the production where the joint products are identifiable as separate products. Ex. 14-31 Sales Revenue -Cost of Food Gross Profit Expenses: Wages +Paper +Depreciation of Counter Gross Profit – Expenses = Net Ex 14-36 Sell Now = $7,000 Process Further Sales Profit -Cost Modifying What you get for Processing Further Ex 14-38 Sales Price -$ Given Up by Processing -Processing Costs -Selling Costs CM