Mizzou ACCTCY 2037 - Acct 2 Notes (9 pages)

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Acct 2 Notes



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Acct 2 Notes

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Pages:
9
School:
University of Missouri
Course:
Acctcy 2037 - Accounting II

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Short Term Planning Decisions 02 25 2014 Decision making 1 Recognizing the need for a decision defining the problem 2 Identifying alternate solutions 3 Evaluating the alternative solutions 4 Making the decision What difference does it make Relevant Costs and Revenues relevant costs and revenues are future costs and revenues that will change as a result of a decision all relevant costs and revenues should be included in an analysis for a decision because incomplete profit information could result in an incorrect decision Determining Relevant Costs and Revenues for a Decision o What activities are necessary for the company to carry out the decision There are activities that cause all relevant costs Thus only the costs that the company incurs as a result of performing these activities can be relevant No cost incurred prior to making the decision is relevant Future costs that a company will incur for activities that are not necessary to carry out the decision are not relevant o By how much will the costs and or revenues be affected if the company undertakes the activities A specific cost is relevant only if the total amount that the company will incur is affected by the decision Other Cost and Revenue Concepts for Short Term Decisions o Incremental costs increases resulting from a higher volume of activity or from the performance of an additional activity They are always relevant when the higher volume of activity or the additional activity is not necessary for the alternative o Avoidable costs costs that a company must incur to perform an activity at a given level but that it can avoid if the company reduces or discontinues the activity o Opportunity costs the profit impact of the disruption or lost opportunity profits that a company forgoes by following a particular course of action Illustration of Determining Relevant Costs and Revenues Special Order o Step 1 and 2 either accept or reject the deal Decide which costs are relevant and which are not eliminate what is



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