Management Accounting Ch07

Determining and evaluating possible courses of action is a step in management’s decision-making process.

In incremental analysis fixed costs may not change under alternative courses of action, while variable costs may change.

The relevant data to consider in accepting an order at a special price are the additional manufacturing costs incurred and expected revenues.

The basic decision rule to sell or process further is: process further as long as the incremental revenue from such processing exceeds the incremental processing costs.

Book value is a sunk cost and is therefore relevant in incremental analysis of retain or replace equipment.

Fixed manufacturing costs will never be relevant in a make or buy decision.

Opportunity costs are costs that have already been incurred and will not be avoided by any future decision.

In deciding on the future status of an unprofitable segment, management should consider the effect of elimination on the remaining product lines.