Chapter 8 - Using accounting information to make managerial decisions. After studying this chapter you will be able to understand: Identifying relevant information, special order pricing, outsourcing, allocating constrained resources, keeping or eliminating operations. | CHAPTER © jsnyderdesign / iStockphoto 8 USING ACCOUNTING INFORMATION TO MAKE MANAGERIAL DECISIONS GOOD NEWS, BAD NEWS FOR C&C CISD wants 1,000 standard practice jerseys, with a couple of special modifications Bonadeo Embroidery wants to supply chenille letters at a low cost There are problems with the jersey fabric order at Bradley Textile Mills It looks like some sales territories are losing money and might need to be shut down What’s the real story on these issues? IDENTIFYING RELEVANT INFORMATION Unit 8 1 . Unit Unit © Tomwang112 / iStockphoto Unit Unit WHAT IS RELEVANT INFORMATION? Information that is directly related to the decision being made Information about something that will happen in the future Information that differs between alternatives LET’S IDENTIFY RELEVANT INFORMATION Accord Mazda 6 Relevant? MSRP $25,405 $23,370 MPG, City 27 21 MPG, highway 36 30 Warranty 36,000 miles, 36 months 36,000 miles, 36 months Leg room (front) ” ” Trunk capacity | CHAPTER © jsnyderdesign / iStockphoto 8 USING ACCOUNTING INFORMATION TO MAKE MANAGERIAL DECISIONS GOOD NEWS, BAD NEWS FOR C&C CISD wants 1,000 standard practice jerseys, with a couple of special modifications Bonadeo Embroidery wants to supply chenille letters at a low cost There are problems with the jersey fabric order at Bradley Textile Mills It looks like some sales territories are losing money and might need to be shut down What’s the real story on these issues? IDENTIFYING RELEVANT INFORMATION Unit 8 1 . Unit Unit © Tomwang112 / iStockphoto Unit Unit WHAT IS RELEVANT INFORMATION? Information that is directly related to the decision being made Information about something that will happen in the future Information that differs between alternatives LET’S IDENTIFY RELEVANT INFORMATION Accord Mazda 6 Relevant? MSRP $25,405 $23,370 MPG, City 27 21 MPG, highway 36 30 Warranty 36,000 miles, 36 months 36,000 miles, 36 months Leg room (front) ” ” Trunk capacity ft3 ft3 ✖ ✖ ✔ ✔ ✔ ✔ SO WHEN IS A COST RELEVANT? IMPORTANT TERMS TO KNOW Avoidable cost Cost associated with a particular alternative that will be eliminated if alternative is eliminated Unavoidable cost Cost that will continue regardless of the alternative selected LET’S PRACTICE Is it cheaper to drive or to fly? You are getting ready to take a 500-mile trip and are trying to decide whether to drive or fly. You know that it costs you $1,000 per year plus $ to operate your car. Based on the 20,000 miles you drive each year, you calculate total costs to be $. You have just gotten wind of a special $65 round trip airfare. LET’S PRACTICE Cost to Drive Cost to Fly 500 miles @ $ = $50 $65 You are getting ready to take a 500-mile trip and are trying to decide whether to drive or fly. You know that it costs you $1,000 per year plus $ to operate your car. Based on the 20,000 miles you drive each year, you calculate total costs to be $. You
