Professional Documents
Culture Documents
Managerial Accounting
Sixth Edition
Weygandt Kimmel Kieso
7-3
Management’s Decision-Making Process
Non-financial information
► Effect on employee turnover
► The environment
► Overall company image.
Relevant cost.
Opportunity cost.
Sunk cost.
Review Question
Incremental analysis is the process of identifying the financial
data that
7-12
Types of Incremental Analysis
Accept
or
Reject?
7-16 LO 3
Types of Incremental Analysis
Make or Buy
Illustration: Baron Company incurs the following annual costs in
producing 25,000 ignition switches for motor scooters.
Illustration 7-5
Make or Buy
Illustration 7-6
Review Question
In a make-or-buy decision, relevant costs are:
c. Opportunity costs.
7-23 LO 4
(b) Will your answer be different if the released productive capacity
will generate additional income of $5,000?
7-24 LO 4
7-25
Types of Incremental Analysis
Decision Rule:
7-27 LO 5
Types of Incremental Analysis
Joint product costs are sunk costs and thus not relevant to the sell-
or-process further decision.
7-29 LO 5
Types of Incremental Analysis
7-32 LO 5
Types of Incremental Analysis
Marais should
shouldor
orshould
shouldnot
notprocess
processthe
themilk
milkfurther?
further?
Review Question
The decision rule is a sell-or-process-further decision:
Process further as long as the incremental revenue from
processing exceeds:
Retain or Replace?
LO 6 Identify the relevant costs to be considered in
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repairing, retaining, or replacing equipment.
Types of Incremental Analysis
7-40 LO 7
Types of Incremental Analysis
Review Question
If an unprofitable segment is eliminated:
7-43 LO 7
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Other Considerations in Decision-Making
Qualitative Factors
Potential effects of decision on existing employees and
the community.
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