COB 242 Study Guide - Quiz Guide: Opportunity Cost, Marginal Cost, Insourcing
17 Apr 2017
School
Department
Course
Professor
Document Summary
Roi (return on investment) = noi / aoa. Ri (residual income) = noi (mrrr * aoa) Three types of responsibility centers: cost center: manages costs/ expenses, ex. Accounting department, hr, it: profit center: manages costs/ expenses & revenues, ex. Investment center: manages cost/ expenses, revenue, and investments in operating assets: use residual income and return on investment a. i. Identify problems and uncertainties: obtain information, make predictions about the future, make decisions between alternatives. Relevant costs/ revenues: future costs/ revenues and differ between alternatives. To determine change in total operating income between alternatives: compare all future revenues & costs or compare differences in relevant future revenues and costs. Qualitative factors: hard to measure in numerical terms. If idle production capacity, accept one-time only special order at a price below normal selling price not long term. Total cost should be used, not unit costs. Incremental cost: additional total cost incurred for an activity. Differential cost: difference in total cost between 2 alternatives.
