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Chapter 7
Learning Objectives
Incremental Analysis
After studying this chapter, you should be able to: [1] Identify the steps in management’s decision-making process. [2] Describe the concept of incremental analysis. [3] Identify the relevant costs in accepting an order at a special price. [4] Identify the relevant costs in a make-or-buy decision. [5] Identify the relevant costs in determining whether to sell or process materials further.
[6] Identify the relevant costs to be considered in repairing, retaining, or replacing equipment.
[7] Identify the relevant costs in deciding whether to eliminate an unprofitable segment or product.
7-1
Preview of Chapter 7
Managerial Accounting Sixth Edition Weygandt Kimmel Kieso
7-2
Management’s Decision-Making Process
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:
Illustration 7-1
7-3
LO 1 Identify the steps in management’s decision-making process.
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.
7-4
Management’s Decision-Making Process
Incremental Analysis Approach
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
7-5
LO 2 Describe the concept of incremental analysis.
Management’s Decision-Making Process
How Incremental Analysis Works
Illustration 7-2
Incremental revenue is $15,000...
Learning Objectives
Incremental Analysis
After studying this chapter, you should be able to: [1] Identify the steps in management’s decision-making process. [2] Describe the concept of incremental analysis. [3] Identify the relevant costs in accepting an order at a special price. [4] Identify the relevant costs in a make-or-buy decision. [5] Identify the relevant costs in determining whether to sell or process materials further.
[6] Identify the relevant costs to be considered in repairing, retaining, or replacing equipment.
[7] Identify the relevant costs in deciding whether to eliminate an unprofitable segment or product.
7-1
Preview of Chapter 7
Managerial Accounting Sixth Edition Weygandt Kimmel Kieso
7-2
Management’s Decision-Making Process
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:
Illustration 7-1
7-3
LO 1 Identify the steps in management’s decision-making process.
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.
7-4
Management’s Decision-Making Process
Incremental Analysis Approach
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
7-5
LO 2 Describe the concept of incremental analysis.
Management’s Decision-Making Process
How Incremental Analysis Works
Illustration 7-2
Incremental revenue is $15,000...