Management and Organizational Studies 3370A/B Chapter 12: Chapter 12 notes

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 3370A/B
• Professor: Raymond Leduc

Document Summary

Chapter 12 relevant costs for decision making. Relevant costs those that differ among alternatives under consideration; aka avoidable cost and differential cost. Avoidable cost a cost that can be eliminated in whole or in part by choosing one alternative over another. Differential cost any cost that differs between alternatives; aka avoidable or relevant cost. The concept of different costs for different purposes is fundamental to managerial accounting. A decision to drop an old segment of a company or add a new one is dependent upon the impact the decision will have on operating income. Unless another product can be found that will generate a greater segment margin than the current one, the company would be better off keeping the line than dropping it. Also, managers may choose to retain an unprofitable line if it is necessary to the sale of other products or if it serves as a magnet to attract customers.