Chapter 10 Flashcards
Expected future data that differ among alternatives
Relevant information
A cost that is relevant to a particular decision because it is a future cost and differs among alternatives
relevant costs
A revenue that is relevant to a particular decision because it is future revenue and differs among alternatives
Relevant revenues
Cost and revenues that do not affect the decision because they are not in the future or do not differ among alternatives
irrelevant costs and revenues
Cost that are already incurred and cannot be changed
sunk cost
A method that looks at how operating income would differ under each decision alternative; leaves out irrelevant information
differential analysis
Two keys in analyzing short term business decisions
- Only consider relevant cost and profits
- Use a contribution margin approach
A company that has little control over the prices of its products and services because its products and services are not uniques or competition is intense.
Price-takers
Emphasize a target pricing approach
A company that has control over the prices of its products and services because its products and services are unique and there is little competition
Price-setters
Emphasize a cost plus pricing approach
A method to manage costs and profits by determining the target full product cost.
Target pricing
The full cost to develop, produce, and deliver the product or service
full product cost = Rev market price - desired profit target
A method to manage costs and profits by determining teh price
Cost-plus pricing = full product cost + desired profit
What are the 3 questions related to decisions about reduced sales prices
- Does the company have excess capacity
- Will the reduced price cover differential cost (provide positive contribution margin)
- Will the special offer affect regular sales in the long run
A cost of a production process that yields multiple products
Joint costs
