About This Chapter
Decision Making in Managerial Accounting - Chapter Summary and Learning Objectives
Accounting managers must make many decisions in their work. In order to take the right course of action, managers must be well informed and prepared. Having a grasp on decision making tools and processes can help. The instructors in this chapter will cover how to use decision making tools and follow procedures. After finishing these lessons, you may choose to complete a quiz to measure your comprehension. This chapter covers topics including:
- The main decision making tools managers must know
- Organizational decision making processes
- Important terminology for decision making
- How to identify variable, fixed and mixed costs
- When to use an incremental analysis
- Ways to identify relevant costs
- Using relevant costs to make decisions
|Quantitative Decision Making Tools: Decision Trees, Payback Analysis & Simulations||Summarize the three main decision making tools used by managers.|
|The Decision Making Process for Organizations||Evaluate the formal decision making process, and why it is key for managers.|
|Decision Making for Managers: Certainty, Risk & Uncertainty||Conclude how certainty and risk are used to make informed decisions.|
|Sunk Costs: Definition & Examples||Calculate sunk costs and examine examples.|
|Opportunity Cost: Definition, Calculations & Examples||Explain the concept of opportunity cost and learn its calculations.|
|Differential Cost in Managerial Decision Making||Dissect differential cost to better understand how to calculate and use it in decision making.|
|Implicit Costs: Definition & Examples||Differentiate implicit costs from explicit costs.|
|Identifying Fixed Costs & Variable Costs for Producers||Consider the concepts of variable and fixed costs.|
|Mixed Costs: Definition & Examples||Illustrate examples of mixed costs, and examine their relation to fixed and variable costs.|
|Incremental Analysis: Definition & Examples||Categorize which decisions would be made using incremental analysis, and learn how to use it to make a decision.|
|Identifying Relevant Costs in Accepting an Order||Assess the relevant costs in the process of accepting an order.|
|Impact of Relevant Costs on Make-or-Buy Decisions||Calculate relevant costs, and learn the effect they have on make-or-buy decisions.|
|Relevant Costs to Selling or Processing Materials Further||Explain the calculations involved in making decisions about single-products or multiple-products.|
|Relevant Costs to Repair, Retain or Replace Equipment||Defend the decision to repair, retain or replace equipment.|
|Relevant Costs in Eliminating a Product or Segment||Compose an incremental analysis to determine whether or not to eliminate a product or segment.|
1. Sunk Costs: Definition & Examples
In this lesson, sunk costs are defined and evaluated in the context of company decision making. Concepts are illustrated with examples from the construction industry and a small messenger business.
2. Opportunity Cost: Definition, Calculations & Examples
This lesson discusses opportunity costs, a central idea of economics. In addition to examining the general idea of opportunity costs, it also looks at the role of explicit and implicit costs to firms.
3. Differential Cost in Managerial Decision Making
Differential cost calculations are an important part of how managers make the best decisions for their businesses. In this lesson, we'll see how it's used and learn how to a find differential cost.
4. Implicit Costs: Definition & Examples
Not all of the costs a business must consider can be calculated and tracked on a monthly basis. This lesson introduces the concept of implicit costs, including examples and how they differ from explicit costs.
5. Identifying Fixed Costs & Variable Costs for Producers
Ever wonder why the price of brand-name drugs is so much more than generics? Or why all tablet prices seem to congregate at about the same level? This lesson explains those and other mysteries through the lenses of variable and fixed costs.
6. Mixed Costs: Definition & Examples
In this lesson, we'll look at mixed costs. We'll define variable costs and fixed costs, and we'll look at how the two are related to mixed costs. Afterward, you can test your knowledge with a brief quiz.
7. Incremental Analysis: Definition & Examples
Companies often have to make decisions based on vast amounts of data. Incremental analysis allows them to focus on the important information only. In this lesson, we'll learn how to use incremental analysis.
8. Identifying Relevant Costs in Accepting an Order
Orders often come with strings attached. In this lesson, we'll look at the relevant costs in accepting an order, seeing how much the difference between fixed and variable costs matters.
9. Impact of Relevant Costs on Make-or-Buy Decisions
Companies are often faced with many decisions, and a reoccurring one is whether it is better to make or buy certain goods or services. This lesson provides details on the impacts of such decisions.
10. Relevant Costs to Selling or Processing Materials Further
Companies know that there is a point where they sacrifice profit in favor of other aspects of production. However, knowing where that line is can be difficult. In this lesson, we learn about the relevant costs of further production.
11. Relevant Costs to Repair, Retain or Replace Equipment
Managers of all types are constantly having to decide whether or not to repair, retain, or replace equipment. In this lesson, we learn how to make those decisions based off of relevant costs, with or without the inclusion of sunk costs.
12. Relevant Costs in Eliminating a Product or Segment
Companies are constantly adapting, which means that they have to work to realize when it is time to look at ending products. In this lesson, we'll look at the relevant costs of eliminating a product or segment.
13. Required Assignments Reminder
Sorry for the interruption to your course progress! We wanted to make sure you knew this course has a written assignment requirement in order to be completed. Read on to learn where to find these assignments and how to submit them.
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Other chapters within the Accounting 301: Applied Managerial Accounting course
- Corporate Governance for Managerial Accounting
- Financial Statements & Balance Sheets
- Cost Classifications
- Manufacturing Overhead Cost Allocation
- Job Order Cost System
- Process Cost System
- Activity-Based Costing
- Cost-Volume-Profit Analysis
- Pricing Objectives & Methods
- Budgetary Control
- Standard Costs
- Capital Budgeting
- Statement of Cash Flows
- Financial Statement Analysis
- Software for Managerial Accounting
- Required Assignments for Accounting 301
- Studying for Accounting 301