COMMERCE 2AB3 Lecture Notes - Lecture 7: Decision-Making, Sunk Costs, Fixed Cost
25 Jan 2017
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Document Summary
Decision making is an important management function. Decisions vary significantly in their scope, urgency, and importance. Accounting contributions to the decision making process in steps 2 and 4. Accounting provides relevant revenue and cost data. Shows the unexpected overall effect on net income. Prepares internal reports that review the actual impact of the decision. Decisions involve a choice among alternative courses of action. The financial data that are relevant to the decision relate to the expense that would vary in the future among the possible alternatives. Incremental analysis: process used to identify the financial expenses that change under alternative courses of action. In some cases costs and revenue will vary, in other cases costs or revenue will vary. Identifies the probable effects of decisions on future earnings. Involves estimates and uncertainty: data can be gathered from market analysts, engineers, and accountants.
