27102069
Description
Mind Map by Megan Heflin, updated more than 1 year ago
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Created by Megan Heflin
over 3 years ago
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Differential Analysis: The Key to Decision Making
- Relevant costs/benefits & irrelevant costs/beneifts
- Relevant costs and benefits should be considered when making decisions
- Irrelevant costs and benefits should be ignored when making decisions
- Relevant costs and benefits should be considered when making decisions
- Differential analysis
- Focusing on the future costs and benefits that differ between the alternatives
- Focusing on the future costs and benefits that differ between the alternatives
- Sunk costs
- A cost that has already been incurred and cannot be changed regardless of what a manager decides to do
- Sunk costs are always irrelevant when choosing among alternatives
- A cost that has already been incurred and cannot be changed regardless of what a manager decides to do
- Opportunity cost
- The potential benefit that is given up when one alternative is selected over another
- Relevant costs that must be considered is every decision a manager makes
- The potential benefit that is given up when one alternative is selected over another
- Make or buy decision
- Decision whether to carry out one of the activities in the value chain internally or to buy externally from a supplier
- Decision whether to carry out one of the activities in the value chain internally or to buy externally from a supplier
- Special order
- One-time order that is not considered part of the company's normal ongoing business
- One-time order that is not considered part of the company's normal ongoing business
- Volume trade-off decisions
- Comapanies must trade off, or sacrifice production of some products in favor of others in an effort to maximize profits
- Companies are forced to make these decisions when they do not have enough capacity to produce all of the products and sales volumes demanded by their customers
- Comapanies must trade off, or sacrifice production of some products in favor of others in an effort to maximize profits
- Constraints
- Anything that prevents you from getting more of what you want
- Managers can increase profits by producing the products with the highest contribution margin per unit of the constrained resource
- Managers can also increase profits by increasing the capacity of the bottleneck operation
- Anything that prevents you from getting more of what you want
- Joint products
- Two or more products that are produced from a common input
- Two or more products that are produced from a common input
- Adding and dropping product lines and other segments
- Costs can be analyzed by either Cost Analysis or a Comparative format income statement
- Managers must be careful of allocated fixed costs that may make a product line look less profitable than it really is
- Costs can be analyzed by either Cost Analysis or a Comparative format income statement
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