ACC 310F Chapter Notes - Chapter 1: Sunk Costs, Management Accounting, Opportunity Cost

• School: UT-Austin
• Department: Accounting
• Course: ACC 310F
• Professor: Stephen Limberg

Document Summary

Specify the decision problem, including the decision maker"s goals. Differences in goals often lead individuals to make different choices, even when confronted with same options. Measure benefits (advantages) and costs (disadvantages) to determine the value (benefits reaped less costs incurred) of each option. The value of an option is a measure of how much the option contributes to the decision maker"s goals! Opportunity cost: value of what you give up by making your decision; value to the decision maker of the next best option (so it is the cost of the option you"re giving up) Make the decision, choosing the option with the highest value: only option whose value exceeds its opportunity cost. Primary role of managerial accounting is to measure costs & benefits of decision options: identifying costs & benefits to measure and estimating each one. Principle of relevance: determines which costs & benefits to consider.