Decision Making and Relevant Information. Chapter 11. Introduction. This chapter explores the decision-making process.
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
Use the five-step decision process to make decisions
Differentiate relevant costs and revenues from irrelevant costs and revenues in any decision situation
Distinguish between quantitative factors and qualitative factors in decisions
Variable Fixed Costs Costs Per UnitPer Unit Direct materials $6.50 $ -0- Direct labor .50 1.50 Manufacturing costs 1.50 3.50 Total $8.50 $5.00
Identify two potential problems that should be avoided in relevant-cost analysis
Describe the opportunity cost concept and explain why it is used in decision making
Describe the key concept in choosing which among multiple products to produce when there are capacity constraints
Discuss the key factor managers must consider when adding or dropping customers and segments
StevensCohen Revenues $200,000 $100,000 Variable costs 70,000 60,000 Fixed costs 100,000 50,000 Total operating costs $170,000 $110,000 Operating income $ 30,000 $ (10,000) Machine-hours required 2,000 1,000
Total Revenues $300,000 Variable costs 130,000 Fixed costs 150,000 Total operating costs $280,000 Operating income $ 20,000 Machine-hours required 3,000
Stevens Alone Revenues $200,000 Variable costs 70,000 Fixed costs 135,000 Total operating costs $205,000 Operating income $ (5,000) Machine-hours required 3,000
Explain why the book value of equipment is irrelevant in equipment-replacement decisions
Existing Replacement MachineMachine Original cost $80,000 $105,000 Useful life 4 years 4 years Accumulated depreciation $50,000 Book value $30,000 Disposal price $14,000 Annual costs $46,000 $ 10,000
Explain how conflicts can arise between the decision model used by a manager and the performance model used to evaluate the manager