Textbook Notes (363,212)
Canada (158,271)
Accounting (242)
ACCT 2230 (113)
Chapter 12

Chapter 12 Managerial Accounting Notes

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University of Guelph
ACCT 2230
Elliot Currie

Chapter 12 AccountingRelevant Costs for Decision MakingRelevant Cost those costs that differ among the alternatives under considerationCOST CONCEPTS FOR DECISION MAKING Four cost terms are applicable in this chapter differential incremental opportunitysunk costsIDENTIFYING RELEVANT COSTSBENEFITS Only those costsbenefits that differ in total between alternatives are relevant in a decision if a cost will be he same regardless of the alternative then the decision has no effect on cost and itcan be ignoredAvoidable Cost cost that can be eliminated in whole or in part by choosing one alternative over another Avoidable costs are relative costs unavoidable costs are irelevant onesSunk Cost a cost that has already been incurred and cant be avoided therefore its irrelevantDifferential Cost avoidable cost differential cost and incremental cost are all interchangeable termsDIFFERENT COSTS FOR DIFFERENT PURPOSES Costs that are relevant n one decision situation arent necessarily relevant in others In each decision manager must examine the data at handisolate the relevant costsANALYSIS OF VARIOUS DECISION SITUATIONSADDINGDROPPING PRODUCT LINESOTHER SEGMENTS Decisions relating to whether existing product lines or other segments of a company should be droppednew ones added are among the hardest a manger must makeWill depend on the impact the decision will have on operating income Manager should ask self What costs can I avoid if I drop this product line If contribution margin hat you will lose by dropping line is less then the avoidable fixed cost it will be profitable to get rid of the line By allocating common fixed costs to all product lines a product line may look as if its unprofitable where it might not b
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