1. Decision Making: Relevant Costs and Benefits
Chapter 14
Decision Making:
Relevant Costs and Benefits 1 1

2. Learning Objective 1

3. The Managerial Accountant’s Role in Decision Making
Cross-functional
management teams
who make
production, marketing,
and finance decisions
Designs and implements
accounting information
system
Make substantive
economic decisions
affecting operations 2 2

4. The Decision-Making Process
1. Clarify the Decision Problem
2. Specify the Criterion
3. Identify the Alternatives
Quantitative
Analysis
4. Develop a Decision Model
5. Collect the Data
6. Make a Decision 3 3

5. Learning Objective 2

6. The Decision-Making Process
1. Clarify the Decision Problem
2. Specify the Criterion
Primarily the
responsibility of the
managerial
accountant.
3. Identify the Alternatives
4. Develop a Decision Model
5. Collect the Data
Information should be:
1. Relevant
2. Accurate
3. Timely
6. Make a Decision 4 4

7. The Decision-Making Process
1. Clarify the Decision Problem
2. Specify the Criterion
3. Identify the Alternatives
Qualitative
Considerations
4. Develop a Decision Model
5. Collect the Data
6. Make a Decision 7 7

8. The Decision-Making Process
1. Clarify the Decision Problem
Relevant
Pertinent to a
decision problem.
2. Specify the Criterion
3. Identify the Alternatives
Accurate
Information must
be precise.
4. Develop a Decision Model
Timely
Available in time
for a decision
5. Collect the Data
6. Make a Decision 4 4

9. Learning Objective 3

10. Information is relevant to a decision problem when . . .
Relevant Information
Information is relevant to a decision problem when . . .
It has a bearing on the future,
It differs among competing alternatives. 8

11. Learning Objective 4

12. Identifying Relevant Costs and Benefits
Sunk costs Costs that have already been incurred. They do not affect any future cost and cannot be changed by any current or future action.
Sunk costs are irrelevant to decisions. 11 9

13. Learning Objective 5 - 6

14. Analysis of Special Decisions
The Text Book takes you through some special decisions faced by many businesses:
Accept or Reject a special order
Outsource a Product or Service
Add or Drop a Service, Product or
Department
Special Decisions in Manufacturing
Decisions Involving Limited Resources

15. Learning Objective 7

16. Other Issues in Decision Making
Incentives for
Decision Makers
Short-Run
Versus
Long-Run
Decisions

17. Other Issues in Decision Making
Pitfalls to Avoid
Sunk
costs.
Allocated
fixed costs.
Unitized
fixed costs.
Opportunity
costs.

18. End of Chapter 14