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After studying this chapter you should be able to: Define the decision-making process and identify the types of cost information relevant for decision making; use relevant cost analysis and strategic analysis to make special order decisions; use relevant cost analysis and strategic analysis in the make, lease, or buy decision; use relevant cost analysis and strategic analysis in the decision to sell before or after additional processing; | Decision Making with a Strategic Emphasis Chapter Eleven McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 11-2 Define the decision-making process and identify the types of cost information relevant for decision making Use relevant cost analysis and strategic analysis to make special order decisions Use relevant cost analysis and strategic analysis in the make, lease, or buy decision Use relevant cost analysis and strategic analysis in the decision to sell before or after additional processing Learning Objectives 11-3 Learning Objectives (continued) Use relevant cost analysis and strategic analysis in the decision to keep or drop products or services Use relevant cost analysis and strategic analysis to evaluate service and not-for-profit organizations Analyze the short-term “product-mix” decisions Discuss behavioral, implementation, and legal issues in decision making Set up and solve in Excel a simple product-mix problem (appendix) 11-4 The Decision-Making Process 11-5 Relevant Cost Analysis A relevant cost is a future cost that differs between the decision alternatives Both characteristics must be present for a cost to be relevant Relevant costs can be variable or fixed, but variable costs are generally relevant while fixed costs are not Relevant cost analysis and total cost analysis produce the same results A sunk cost is a cost that has been incurred in the past or committed for the future 11-6 Equipment-Replacement Decision Example Original cost of old machine, $4,200 Current book value of old machine, $2,100 Purchase price of a new machine, $7,000 New machine will have zero salvage value Repairs to old machine would be $3,500 and would allow one more year of productivity Power for either machine is expected to be $2.50/hour New machine will reduce labor costs by $0.50/hour Expected level of output for next year is 2,000 units Which costs are not relevant to the decision to keep an old machine or replace it with a . | Decision Making with a Strategic Emphasis Chapter Eleven McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 11-2 Define the decision-making process and identify the types of cost information relevant for decision making Use relevant cost analysis and strategic analysis to make special order decisions Use relevant cost analysis and strategic analysis in the make, lease, or buy decision Use relevant cost analysis and strategic analysis in the decision to sell before or after additional processing Learning Objectives 11-3 Learning Objectives (continued) Use relevant cost analysis and strategic analysis in the decision to keep or drop products or services Use relevant cost analysis and strategic analysis to evaluate service and not-for-profit organizations Analyze the short-term “product-mix” decisions Discuss behavioral, implementation, and legal issues in decision making Set up and solve in Excel a simple product-mix problem (appendix) 11-4 The
