暨南大学管理学院成本与管理会计课件 Chapter13.ppt

Relevant Costs for Decision Making Chapter Thirteen Learning Objective 1 Cost Concepts for Decision Making A relevant cost is a cost that differs between alternatives. Identifying Relevant Costs An avoidable cost can be eliminated, in whole or in part, by choosing one alternative over another. Avoidable costs are relevant costs. Unavoidable costs are irrelevant costs. Two broad categories of costs are never relevant in any decision. They include: Sunk costs. Future costs that do not differ between the alternatives. Relevant Cost Analysis: A Two-Step Process Different Costs for Different Purposes Identifying Relevant Costs Identifying Relevant Costs Identifying Relevant Costs Identifying Relevant Costs Identifying Relevant Costs Identifying Relevant Costs Identifying Relevant Costs Total and Differential Cost Approaches Total and Differential Cost Approaches Total and Differential Cost Approaches Learning Objective 2 Adding/Dropping Segments One of the most important decisions managers make is whether to add or drop a business segment, such as a product or a store. Let’s see how relevant costs should be used in this type of decision. Adding/Dropping Segments Due to the declining popularity of digital watches, Lovell Company’s digital watch line has not reported a profit for several years. Lovell is considering dropping this product line. A Contribution Margin Approach DECISION RULE Lovell should drop the digital watch segment only if its profit would increase. This would only happen if the fixed cost savings exceed the lost contribution margin. Let’s look at this solution. Adding/Dropping Segments Adding/Dropping Segments Adding/Dropping Segments A Contribution Margin Approach Comparative Income Approach The Lovell solution can also be obtained by preparing comparative income statements showing results with and without the digital watch segment. Let’s look at this second approach. Beware of Allocated Fixed Costs Beware of Allocated Fixed Costs Beware of Allo