A202 Chapter 2 Notes
A202 Chapter 2 Notes BUS-A202
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This 2 page Class Notes was uploaded by Lauren Detweiler on Monday January 26, 2015. The Class Notes belongs to BUS-A202 at Indiana University taught by Diane Biagioni in Spring2015. Since its upload, it has received 120 views. For similar materials see Managerial Accounting in Business at Indiana University.
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Date Created: 01/26/15
A202 Week 2 Prof Biagioni Textbook Notes Chapter 2 Identi ing and Estimating Costs and Bene ts 1 Knowing What to Measure a Relevance relevant costsbene ts differ across decision options b Future revenues and costs do not focus on sunk costs past expenditure because we cannot change the past 11 Time and Decision Making a Controllability by picking an option the decision maker chooses to receive some benefits and incur some costs relative to doing nothing i A cost or a benefit is controllable if the decision maker can avoid it by not picking that option ii Benefitscosts that are not controllable cannot be relevant however not all controllable benefitscosts are relevant b Categorizing decisions based on time i Controllability can vary depending on if it is long or shortterm ii How to distinguish long from shortterm 1 Longterm the ability to change the levels of capacity resources related to plants equipment and salaried staff 2 Shortterm capacities of these resources are xed iii Can also classify decisions as relating to long vs shortterm based on the time over which you experience the costs benefits iv There is no unique rule that allows us to classify all decisions as long or shortterm without any ambiguity 111 How to Estimate Costs and Benefits a Steps in estimating costs i Cost behavior build a model of the relation between cost and activity ii Cost estimation use historical data to estimate the model iii Cost prediction predict cost associated w a decision option b Variability the relation between a costbenefit and an activity i Variable cost proportional to the volume of activity ii Fixed cost no change as the volume changes iii Mixed cost combination of variable and fixed iv Step cost stays at the same level for a certain activity range but jumps to a higher amount if the volume increases past that range c Traceability the degree to which we can directly relate a costrevenue to a decision option i Direct costrevenue we can uniquely relate trace to a decision option ii Indirect only a portion of the costrevenue pertains to a specific decision option IV Hierarchical Cost Structure a Unitlevel increasedecrease in direct proportion to of units produced b Batchlevel depends on the number of batches produced of setups c Productlevel change only as the company changes the of products d Facility level costs that do not vary at the unit batch or product levels ie xed costs of operating a factory
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