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Chapter 10 Summary A summary of Chapter 10 from the Accounting for Non-Financial Managers which include definitions, formulas, and processes.

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York University
Administrative Studies
ADMS 1500
Marcela Porporato

Chapter 10: Analysis of short term decisions Differential costs & Revenues: new orders.  The idea of cost behaviour is close to differential costs and revenues.  Differential costs and revenues change as a result of a decision  Variable costs are normally differential costs and fixed costs are normally NOT.  Making a decision that is relevant is differential to the decision.  Revenues are generally differential and behave in a variable way as sales rise or fall.  More revenue is better than less always.  Typically organizations use full cost as their way of reporting accounting information.  Financial accounts don’t split costs on the basis of behaviour (fixed/variable) instead they’re reported functionally (materials, wages, rent).  Inventories are normally valued at full cost rather than variable.  In full cost accounting, date is used in short term decision making and the effect is inaccurate.  Suppose production overhead is a fixed cost, there’s production capacity.  Production overhead allocation is irrelevant in decision making.  Capacity Issues  When there`s issues with unused capacity there’s several choices would result in additional contribution margin, losing the contribution margin on regular sales or to increase contribution margin from the new order.  Potential drawback with failing to supply the regular customers with his products they normally buy.  There`s some things more expensive than dissatisfied customers but those customers satisfaction could not be given an accurate dollar value. So it`s omitted from the calculation.  All alternatives increase profit, the best is the first choice as it adds the greatest amount profit.  Make or buy  Costs that can be eliminated by sourcing outside are differential costs & costs that continue are not differential.  The use of full cost is likely to provide misleading information  Fringe benefits (10% x salaries & wages)  Corporate overhead (25 x $1000)  Sunk cost  Al
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