ADMS 1500 Lecture Notes - Environmental Full-Cost Accounting, Contribution Margin, Sunk Costs
16 Oct 2011
School
Department
Course
Professor
Document Summary
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.
