Chapter 20 - Incremental analysis. In this chapter students will be able to: Describe management’s decision-making process and incremental analysis, analyze the relevant costs in accepting an order at a special price, analyze the relevant costs in a make-or-buy decision. | INCREMENTAL ANALYSIS Accounting, Fifth Edition 20 After studying this chapter, you should be able to: Identify the steps in management’s decision-making process. Describe the concept of incremental analysis. Identify the relevant costs in accepting an order at a special price. Identify the relevant costs in a make-or-buy decision. Identify the relevant costs in determining whether to sell or process materials further. Identify the relevant costs to be considered in repairing, retaining, or replacing equipment. Identify the relevant costs in deciding whether to eliminate an unprofitable segment or product. Learning Objectives Preview of Chapter 20 Accounting Fifth Edition Kimmel Weygandt Kieso Making decisions is an important management function. Does not always follow a set pattern. Decisions vary in scope, urgency, and importance. Steps usually involved in process include: LO 1 Identify the steps in management’s decision-making process. Illustration 20-1 Management’s Decision-Making Process In making business decisions, Considers both financial and non-financial information. Financial information Revenues and costs, and Effect on overall profitability. Non-financial information Effect on employee turnover The environment Overall company image. LO 1 Identify the steps in management’s decision-making process. Management’s Decision-Making Process Decisions involve a choice among alternative actions. Process used to identify the financial data that change under alternative courses of action. Both costs and revenues may vary or Only revenues may vary or Only costs may vary LO 2 Describe the concept of incremental analysis. Incremental Analysis Approach Management’s Decision-Making Process LO 2 Describe the concept of incremental analysis. How Incremental Analysis Works Incremental revenue is $15,000 less under Alternative B. Incremental cost savings of $20,000 is realized. Alternative B produces $5,000 more net income. Illustration 20-2 Management’s Decision-Making . | INCREMENTAL ANALYSIS Accounting, Fifth Edition 20 After studying this chapter, you should be able to: Identify the steps in management’s decision-making process. Describe the concept of incremental analysis. Identify the relevant costs in accepting an order at a special price. Identify the relevant costs in a make-or-buy decision. Identify the relevant costs in determining whether to sell or process materials further. Identify the relevant costs to be considered in repairing, retaining, or replacing equipment. Identify the relevant costs in deciding whether to eliminate an unprofitable segment or product. Learning Objectives Preview of Chapter 20 Accounting Fifth Edition Kimmel Weygandt Kieso Making decisions is an important management function. Does not always follow a set pattern. Decisions vary in scope, urgency, and importance. Steps usually involved in process include: LO 1 Identify the steps in management’s decision-making process. Illustration 20-1 Management’s Decision-Making
