ACCTG 102 Chapter Notes - Chapter 11: Marginal Cost, Sunk Costs, Insourcing
Document Summary
Managers usually follow a decision model for choosing amoung different course of action. A decision model is a formal method of making a choice that often involves both quantitative and qualitative analyses. Management accountants analyze and present relevant data to guide managers decisions. Managers use the five step decision making process. It differs among the alternative course of action. Past costs are never relevant and are also called sunk costs. Quantitative factors are outcomes that are measured in numerical terms. Qualitative factors are outcomes that are difficult to measure accurately in numerical terms, such as satisfaction. Incremental cost the additional total cost incurred for an activity. Differential cost the difference in total cost between two alternatives. Incremental revenue the additional revenue from an activity. Differential revenue the difference in total revenue between two alternatives. Decision to accept or reject special orders when there is idle production.
