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ACC 410 (34)
Chapter 4

Chapter 4

3 Pages
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Department
Accounting
Course Code
ACC 410
Professor
Vanessa Magness

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Chapter 4: Relevant Costs for Non-routine Operating Decisions
Routine Operating Decisions: mad on a regular schedule (ex: budgeting done in a year)
Non-Routine Decisions: occur less frequently than routine decisions (when we want to
re-evaluate operations
Process or Addressing Non-routine Operating Decisions
Identify type of decision managers must make
Identify relevant quantitative analysis techniques (gather relevant information
and apply it)
Apply each relevant analysis techniques
Identify and analyze qualitative factors (using judgement)
Consider quantitative and qualitative information to make a decision
Applications of non-routine operating decisions
Special orders
Keep or drop decisions
Insource or outsource (make or buy) decisions
Constrained resources
Product emphasis involving multiple resource constraints and multiple products
General Decision Rule: take the action that maximizes current-period income (or
minimizes current-period losses)
To apply the General Decision Rule:
CMU
CMU of constrained Resources
FC that differ between alternatives
Opportunity costs (CM of any regular business replaced)
General Rule for Special Order Decision
We want to be as well off after accepting the order as we were before we accepted
it
Fixed costs are irrelevant and sunk costs
General Rule for Keep or Drop Decision
General rule is we discontinue a product, service, or business segment when its
total CM does not cover its avoidable fixed costs
We separate the fixed costs from the variable costs which are relevant- we then
determine which fixed costs are relevant (ex: if FC changes if we drop a product,
service, or segment)
We classify fixed costs as avoidable or unavoidable
General Rule for Make or Buy decision: (outsourcing decisions)
Choose the option with the lowest relevant costs
Compare the outsourcing costs with the incremental costs for insourcing
Existing fixed costs are relevant only if they can be avoided through outsourcing
Opportunity costs is insourcing
Extra space or capacity from outsourcing can be converted to other uses
Quality and Outsourcing Decision
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Description
Chapter 4: Relevant Costs for Non-routine Operating Decisions Routine Operating Decisions: mad on a regular schedule (ex: budgeting done in a year) Non-Routine Decisions: occur less frequently than routine decisions (when we want to re-evaluate operations Process or Addressing Non-routine Operating Decisions Identify type of decision managers must make Identify relevant quantitative analysis techniques (gather relevant information and apply it) Apply each relevant analysis techniques Identify and analyze qualitative factors (using judgement) Consider quantitative and qualitative information to make a decision Applications of non-routine operating decisions Special orders Keep or drop decisions Insource or outsource (make or buy) decisions Constrained resources Product emphasis involving multiple resource constraints and multiple products General Decision Rule: take the action that maximizes current-period income (or minimizes current-period losses) To apply the General Decision Rule: CMU CMU of constrained Resources FC that differ between alternatives
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