Скачать презентацию Relevant Costs for Decision Making UAA ACCT Скачать презентацию Relevant Costs for Decision Making UAA ACCT

6bb21ddf43d118c34af2d256788b1192.ppt

  • Количество слайдов: 62

Relevant Costs for Decision Making UAA – ACCT 202 Principles of Managerial Accounting Dr. Relevant Costs for Decision Making UAA – ACCT 202 Principles of Managerial Accounting Dr. Fred Barbee

Information as a Resource Information is now regarded as the sixth resource. Information as a Resource Information is now regarded as the sixth resource.

Information Anxiety Source: Information Anxiety Richard S. Wurman Information Anxiety Source: Information Anxiety Richard S. Wurman

A weekend edition of the NY Times contains more information than the average person A weekend edition of the NY Times contains more information than the average person was likely to come across in a lifetime in seventeenth-century England.

More new information has been produced in the last 30 years than in the More new information has been produced in the last 30 years than in the previous 5, 000. About 1, 000 books are published internationally every day, and the total of all printed knowledge doubles every eight years.

In a single year. . . • The average American will read or complete In a single year. . . • The average American will read or complete 3, 000 notices and forms; • Read 100 newspapers and 36 magazines; • Watch 2, 463 hours of television;

In a single year. . . • Listen to 730 hours of radio; • In a single year. . . • Listen to 730 hours of radio; • Talk on the phone for 61 hours; and • Read 3 books

The Challenge of Information %#@!# The Challenge of Information %#@!#

Computation Speed. . . Date Method Speed in ips* 5, 000 BC Abacus 2 Computation Speed. . . Date Method Speed in ips* 5, 000 BC Abacus 2 -4 ips 1945 A. D. Computer 100 ips 1960 s Computer 100, 000 ips 1970 s Computer 1, 000 ips 1980 s Computer 10, 000 ips 1990 s Computer 1, 000, 000 ips *Instructions per second.

Transmission Speed Date Medium Speed in wpm* 4, 000 BC Messenger . 01 wpm Transmission Speed Date Medium Speed in wpm* 4, 000 BC Messenger . 01 wpm 1844 A. D. Telegraph 50 - 60 wpm 1980 s Cable/Fibre 1, 000, 000 wpm 1990 s Fibre 100, 000, 000 wpm *Words per minute

Human Processing Speed Date Medium Speed in wpm* 4, 000 BC Written 300 wpm Human Processing Speed Date Medium Speed in wpm* 4, 000 BC Written 300 wpm Today Written 300 wpm 4, 000 BC Visual 100, 000 bpg** Today Visual 100, 000 bpg 4, 000 BC Spoken 120 wpm Today Spoken 120 wpm *Words per minute **Bits per glance

Information Overload The theory of bounded rationality (Simon, 1955). Humans are organisms of limited Information Overload The theory of bounded rationality (Simon, 1955). Humans are organisms of limited knowledge and computational capacity. Thus, simplifications (heuristics) are deliberately introduced into the choice mechanism.

Dealing With Information Overload HELP! Dealing With Information Overload HELP!

Information Processing • People are consistency seekers; • People are Information Processors; and • Information Processing • People are consistency seekers; • People are Information Processors; and • People are Cognitive Misers

People as Information Processors • Actively seek out information, • Observe facts, and • People as Information Processors • Actively seek out information, • Observe facts, and • Reason

People as Cognitive Misers • Minimize cognitive efforts, and • Take shortcuts. People as Cognitive Misers • Minimize cognitive efforts, and • Take shortcuts.

Managers as Cognitive Misers • Managers must be selective in the kinds of information Managers as Cognitive Misers • Managers must be selective in the kinds of information they request. • The key to limiting the flow of data is to request only relevant information.

Information Overload • Unquestionably we need information in our lives. . . however, that Information Overload • Unquestionably we need information in our lives. . . however, that information must be directly relevant to our daily lives. • The real question today is, “How do we zero in on the relevant and reject the rest? ”

Information Literacy To be information literate, a person must be able to recognize when Information Literacy To be information literate, a person must be able to recognize when information is needed and have the ability to locate, evaluate, and use effectively the needed information. Source: Presidential Committee on Information Literacy

The Need For Cost Data • Purchase new equipment; • Replace existing equipment; • The Need For Cost Data • Purchase new equipment; • Replace existing equipment; • Introducing new products; • Taking special orders;

The Need For Cost Data • Make vs. buy decisions. • Product-pricing decisions • The Need For Cost Data • Make vs. buy decisions. • Product-pricing decisions • Allocation of scarce resources.

Relevant Costs Are. . . • Any cost that differs among alternatives and will Relevant Costs Are. . . • Any cost that differs among alternatives and will influence the outcome, • Any cost that is avoidable, and avoidable • Any cost that is a future cost.

Relevant Revenues • Any revenue that differs among alternatives; and • will influence the Relevant Revenues • Any revenue that differs among alternatives; and • will influence the outcome,

Avoidable Costs An avoidable cost is. . . a cost that can be eliminated Avoidable Costs An avoidable cost is. . . a cost that can be eliminated (in whole or in part) as a result of choosing one alternative over another.

Avoidable Costs • All costs are considered to be avoidable, except. . . – Avoidable Costs • All costs are considered to be avoidable, except. . . – Sunk Costs, and – Costs that are the same for each alternative.

When does the cost arise? Past Does the cost differ between alternatives? Yes No When does the cost arise? Past Does the cost differ between alternatives? Yes No Future Sunk Relevant Sunk Not Relevant

Different Costs for Different Purposes Different Costs for Different Purposes

Internal Value Chain Activities Design Service Develop Distribute Produce Market Internal Value Chain Activities Design Service Develop Distribute Produce Market

Product Costing Definitions Value-Chain Product Costs Operating Product Costs Traditional Product Costs Production Marketing Product Costing Definitions Value-Chain Product Costs Operating Product Costs Traditional Product Costs Production Marketing Customer Service Research and Development Pricing Decisions Product-Mix Decisions Strategic Profitability Analysis Strategic Design Decisions Tactical Profitability Analysis External Financial Reporting

Value-Chain Product Costs Research and Development Production Marketing Customer Service Pricing Decisions Product-Mix Decisions Value-Chain Product Costs Research and Development Production Marketing Customer Service Pricing Decisions Product-Mix Decisions Strategic Profitability Analysis If making these types of decisions, we need to look at all costs.

Operating Product Costs Production Marketing Customer Service Strategic Design Decisions Tactical Profitability Analysis On Operating Product Costs Production Marketing Customer Service Strategic Design Decisions Tactical Profitability Analysis On the other hand, for these decisions, we might be able to ignore some of the costs.

Product Costing Definitions Value-Chain Product Costs Operating Product Costs For external Research and Development Product Costing Definitions Value-Chain Product Costs Operating Product Costs For external Research and Development financial Production reporting, we Production Marketingonly these need Customer Service costs. Customer Service Pricing Decisions Product-Mix Decisions Strategic Profitability Analysis Strategic Design Decisions Tactical Profitability Analysis Traditional Product Costs Production External Financial Reporting

Identifying Relevant Costs A Text Example Identifying Relevant Costs A Text Example

Identifying Relevant Costs Text pages 588 -589 Identifying Relevant Costs Text pages 588 -589

Identifying Relevant Costs Option #1 Option #2 From a financial standpoint, Cynthia would be Identifying Relevant Costs Option #1 Option #2 From a financial standpoint, Cynthia would be better off taking the train to visit her friend. Some of the non-financial factor may influence her final decision.

Total and Differential Cost Approaches The Text Example Total and Differential Cost Approaches The Text Example

Text Example • Oak Harbor Woodworks is considering a new labor-saving machine that rents Text Example • Oak Harbor Woodworks is considering a new labor-saving machine that rents for $3, 000 per year. • The machine will be used on the company’s butcher block production line. • Pertinent data are provided.

Text Example Text pages 591 Text Example Text pages 591

Exhibit 13 -1 – Total and Differential Costs Exhibit 13 -1 – Total and Differential Costs

Adding and Dropping Product Lines and Other Segments Exercise 13 -3 p. 613 Adding and Dropping Product Lines and Other Segments Exercise 13 -3 p. 613

What should Jackson do? Decision Rule Jackson County should drop the housekeeping segment only What should Jackson do? Decision Rule Jackson County should drop the housekeeping segment only if its profit would increase. This would happen only if the fixed cost savings exceed the lost contribution margin.

Incremental (Differential) Analysis Contribution Margin lost if program is dropped ($80, 000) Fixed costs Incremental (Differential) Analysis Contribution Margin lost if program is dropped ($80, 000) Fixed costs avoided: Liability Insurance Administrator’s Salary Decrease in NOI for firm as a whole $15, 000 37, 000 52, 000 ($28, 000)

This same solution can be obtained by using a total cost approach by preparing This same solution can be obtained by using a total cost approach by preparing comparative income statements showing results with and without the Housekeeping segment.

The Total Cost Approach Depreciation is a sunk cost and the van has no The Total Cost Approach Depreciation is a sunk cost and the van has no salvage value since it would be donated to another organization. General Administrative overhead is allocated and none of it would be avoided if the program is dropped.

Let’s apply that concept to this problem BEWARE OF ALLOCATED FIXED COSTS! Remember the Let’s apply that concept to this problem BEWARE OF ALLOCATED FIXED COSTS! Remember the text discussion of this topic?

Beware of Allocated Fixed Costs Beware of Allocated Fixed Costs

The Make or Buy Decision The Make or Buy Decision

The Make or Buy Decision • A decision concerning whether an item should be The Make or Buy Decision • A decision concerning whether an item should be produced internally or purchased from an outside supplier is called a “make or buy” decision. • Exercise 13 -4 – Make or Buy a Component (p. 614)

The Make or Buy Decision • A decision concerning whether an item should be The Make or Buy Decision • A decision concerning whether an item should be produced internally or purchased from an outside supplier is called a “make or buy” decision.

The Make or Buy Decision • In the “make vs. buy” decision you need The Make or Buy Decision • In the “make vs. buy” decision you need to isolate the relevant costs by: – Eliminating the sunk costs – Eliminating future costs that do not differ between the make or buy decision. • Exercise 13 -4 – Make or Buy a Component (p. 614).

Opportunity Costs Opportunity Costs

Special Orders Special Orders

Special Orders • A special order is a one-time order that is not considered Special Orders • A special order is a one-time order that is not considered part of the company’s normal ongoing business. • Before acceptance the firm must carefully examine existing capacity. • Exercise 13 -5 – Evaluating a Special Order.

Utilization of a Constrained Resource Utilization of a Constrained Resource

Constrained Resources • Maximize total contribution margin by promoting those products/orders that provide the Constrained Resources • Maximize total contribution margin by promoting those products/orders that provide the highest unit contribution margin in relation to the constrained resource. • Exercise 13 -6 – Utilization of a constrained resource.

Managing Constraints Produce only what can be sold. At the bottleneck itself: • Improve Managing Constraints Produce only what can be sold. At the bottleneck itself: • Improve the process • Add overtime or another shift • Hire new workers or acquire more machines • Subcontract production Eliminate waste. Streamline production process.

Joint Product Costs Joint Product Costs

Joint Product Costs • In some industries, a number of end products are produced Joint Product Costs • In some industries, a number of end products are produced from a single raw material input. • Two or more products produced from a common input are called joint products. • The point in the manufacturing process where each joint product can be recognized as a separate product is called the split-off point.

Joint Products Joint Costs Joint Input Common Production Process Oil Gasoline Chemicals Split-Off Point Joint Products Joint Costs Joint Input Common Production Process Oil Gasoline Chemicals Split-Off Point Separate Processing Final Sale Separate Processing Separate Product Costs Final Sale

The Pitfalls of Allocation Joint costs are really common costs incurred to simultaneously produce The Pitfalls of Allocation Joint costs are really common costs incurred to simultaneously produce a variety of end products. Joint costs are often allocated to end products on the basis of the relative sales value of each product or on some other basis.