AFM481 Chapter : Ch 4 Summary.docx

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM481
• Professor: Grant Russell

Document Summary

Need to know the type of decision in order to determine what info is relevant. Can also consider other options to achieve the same result. Quantitative information: numerical information (from the accounting system and outside info) Focus on comparing relevant cash flows across alternatives. Qualitative information: factors that are not valued by numbers (prior experience, quality, etc. ) Before analysis, consider how the decision will affect long-term goals. Need to prioritize issues (strategic and risk considerations) Trade-offs need to be made sometimes like short-term cash flows for stability. Discontinue if the incremental profit from keeping it is negative. Cm < relevant fixed costs + opportunity costs the drop the business segment. Determine which costs are avoidable if we drop (analyze the nature of the cost and its relation to the alternatives) Variable costs are usually relevant; fixed costs are usually unavoidable. Customer cm < relevant fixed costs + opp. costs then drop the customer.