Mizzou ACCTCY 2037 - Chapter 14 Outlines (9 pages)

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Chapter 14 Outlines



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Chapter 14 Outlines

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

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Accounting 12 08 2012 Chapter 14 Short Term Planning Decisions Decision Making Critical thinking o Recognize the need for a decision define the problem o Identify alternative solutions o Evaluate alternative solutions o Make the decision choose the best alternative Evaluation very important Important area where decision alternatives make a difference is in a company s profit o Affect on employees community environment etc Relevant Costs and Revenues To understand the profit impact of a decision managers must carefully analyze the costs and revenues that the decision affects or the relevant costs and revenues Relevant costs and relevant revenues are future costs and revenues that will change as a result of a decision a cost or revenue that is relevant for one decision may not be relevant for another important part of preparing an analysis for a decision is to identify the costs and or revenues that are relevant for that decision Incomplete profit information could result in an incorrect decision Costs and revenues that are not relevant should be omitted from analysis Determining Relevant Costs and Revenues for a Decision Two questions o 1 What activities are necessary for the company to carry out the decision o 2 By how much will the costs and or revenues be affected if the company undertakes the activities What Activities are necessary for the company to carry out the decision The key to identifying potentially relevant costs is to have a good understanding of the company s activities that are necessary to carry out the decision Activities are the cause of all relevant costs Only 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 All costs that the company incurs as a result of the activities must be future costs Pasts costs sunk costs eliminated from consideration Future costs that a company will incur for activities that are not necessary to carry out the decision are



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