BUSACC 0040 Chapter Notes - Chapter 12: Value Chain, Jet Fuel, Vertical Integration
Document Summary
Chapter 12: differential analysis: the key to decision making. Section 1 decision making: six key concepts. Irrelevant costs and irrelevant benefits: should be ignored when making decisions: bad decisions can easily result from erroneously including irrelevant costs and. If the alternative"s differential benefits (i. e. , its future cost inflows) exceeds its differential costs (i. e. , its future cost outflows) = financial advantage. Decision analysis: the total cost and differential cost approaches: differential approach: focuses solely on the relevant costs and benefits. In this instance, allocating the common fixed costs among all product lines makes the housewares product line appear to be unprofitable; however, there is a ,000 financial disadvantage associated with dropping the product line. Managerial accounting: the decision on stop making a product internally and buy them from an outside supplier depends on the relevant costs- those that differ from the alternatives.