AC 212 Lecture Notes - Lecture 8: Sunk Costs, Heavy Competition, Contribution Margin

• School: Quinnipiac University
• Department: Accounting
• Course: AC 212
• Professor: Katherine Simione

Document Summary

Lo 6 analyze outsourcing (make or buy) decisions. Lo 1 describe and identify information relevant to short-term business decisions. Identify alternative courses of action: define business goals, gather and analyze relevant information, choose best alternative, follow-up: compare actual with anticipated results. Relevant information: two characteristics, pertains to the future, differs among alternatives. Example: in deciding to buy a new car . Relevant cost - invoice price, sales tax, and insurance premium. Incremental analysis approach: consider only how operating income would change or differ under each alternative. Ignores irrelevant information: focus on relevant revenues, costs, and profits, use a contribution margin approach that separates variable costs from fixed costs. Irrelevant costs: costs do not differ between alternatives and/or are past costs. Example: if you are considering closing one of your stores, the amount you pay the company"s ceo is irrelevant. The ceo will earn the same pay regardless of whether the store remains open or not.