Chapter 14 - Decision making: Relevant costs and benefits. After completing this chapter, you should be able to: Describe seven steps in the decision-making process and the managerial accountant’s role in that process; explain the relationship between quantitative and qualitative analyses in decision making; list and explain two criteria that must be satisfied by relevant information. | Decision Making: Relevant Costs and Benefits Chapter 14 1 1 The Managerial Accountant’s Role in Decision Making Designs and implements accounting information system Cross-functional management teams who make production, marketing, and finance decisions Make substantive economic decisions affecting operations Managerial Accountant 2 2 Learning Objective 1 The Decision-Making Process 1. Clarify the Decision Problem 2. Specify the Criterion 3. Identify the Alternatives 4. Develop a Decision Model 5. Collect the Data 6. Make a Decision Quantitative Analysis 3 3 The Decision-Making Process 1. Clarify the Decision Problem 2. Specify the Criterion 3. Identify the Alternatives 4. Develop a Decision Model 5. Collect the Data 6. Make a Decision Primarily the responsibility of the managerial accountant. Information should be: 1. Relevant 2. Accurate 3. Timely 4 4 Learning Objective 2 The Decision-Making Process 1. Clarify the Decision Problem 2. Specify the Criterion 3. Identify the Alternatives | Decision Making: Relevant Costs and Benefits Chapter 14 1 1 The Managerial Accountant’s Role in Decision Making Designs and implements accounting information system Cross-functional management teams who make production, marketing, and finance decisions Make substantive economic decisions affecting operations Managerial Accountant 2 2 Learning Objective 1 The Decision-Making Process 1. Clarify the Decision Problem 2. Specify the Criterion 3. Identify the Alternatives 4. Develop a Decision Model 5. Collect the Data 6. Make a Decision Quantitative Analysis 3 3 The Decision-Making Process 1. Clarify the Decision Problem 2. Specify the Criterion 3. Identify the Alternatives 4. Develop a Decision Model 5. Collect the Data 6. Make a Decision Primarily the responsibility of the managerial accountant. Information should be: 1. Relevant 2. Accurate 3. Timely 4 4 Learning Objective 2 The Decision-Making Process 1. Clarify the Decision Problem 2. Specify the Criterion 3. Identify the Alternatives 4. Develop a Decision Model 5. Collect the Data 6. Make a Decision Qualitative Considerations 7 7 The Decision-Making Process 1. Clarify the Decision Problem 2. Specify the Criterion 3. Identify the Alternatives 4. Develop a Decision Model 5. Collect the Data 6. Make a Decision Relevant Pertinent to a decision problem. Accurate Information must be precise. Timely Available in time for a decision 4 4 Relevant Information Information is relevant to a decision problem when . . . It has a bearing on the future, It differs among competing alternatives. 8 Learning Objective 3 Identifying Relevant Costs and Benefits Sunk costs Costs that have already been incurred. They do not affect any future cost and cannot be changed by any current or future action. Sunk costs are irrelevant to decisions. 9 11 Learning Objective 4 Analysis of Special Decisions The Text Book takes you through some special decisions faced by many businesses: Accept or Reject a special order Outsource a Product or Service Add or Drop a Service, Product or Department Special Decisions in Manufacturing Decisions Involving Limited Resources Learning Objectives 5 – 6 Other Issues in Decision Making Incentives for Decision Makers Short-Run Versus Long-Run Decisions Learning Objective 7 Other Issues in Decision Making Pitfalls to Avoid Sunk costs. Unitized fixed costs. Allocated fixed costs. Opportunity costs. End of Chapter 14
