Concept Introduction:
Decision making plays an important role in the management. The decisions taken by managers are called managerial decisions. Managerial Decisions are decisions taken by managers for the operations of a firm. These decisions include setting target growth rates, hiring or firing employees, and deciding what products to sell. Manager's decisions are taken on the basis of quantitative as well as the qualitative measures. The managerial decision includes the decisions like make or buy, accept or reject new offers, sell or further process etc. These decisions are taken on the basis of relevant costs.
Relevant costs are the costs that are relevant for any decision making. Relevant costs are helpful for take managerial decisions like make or buy, accept or reject new offers, sell or further process etc.
Two basic types of the relevant costs are as follows:
- Out-of-pocket costs
- Opportunity costs
The meaning of Differential revenue, Differential cost, and Differential Income
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Chapter 12 Solutions
Survey of Accounting (Accounting I)
- Explain the meaning of (A) differential revenue, (B) differential cost, and (C) differential profit (loss).arrow_forwardEXPLAIN THE FOLLOWING: 1. Gross profit variation 2. Cost conceptarrow_forwardWhich method results in a more realistic amount for income because it matches the most current costs against revenue? a.FIFO b.Weighted average cost c.Specific identification d.LIFOarrow_forward
- What circumstances might create distortions where estimated costs are not an accurate representation of true cost?arrow_forward1. Why are indirect costs not directly traced to cost objects in the same way as direct costs? 2. Define cost tracing, cost allocation, allocation base and cost driver. 3. Distinguish between arbitrary and cause-and-effect allocations. 4. Explain how cost information differs for profit measurement/inventory valuation requirements compared with decision-making requirements. 5. Explain why cost systems should differ in terms of their level of sophistication.arrow_forwardWhat type of cost is included in economic costs, but not included in accounting costs?a. Explicit costsb. Negative costsc. Normal profitd. Marginal coste. Unit costsarrow_forward
- What are: Relevant / irrelevant / Differential Costs Relevant / irrelevant / Differential Revenues Avoidable / unavoidable costs Sunk costsarrow_forwardThe definition of the cost is the collection of cost data in some organized way by means of an accounting system. Select one: True Falsearrow_forwardIn a decision analysis situation, which one of the following costs is generally not relevant to the decision?A. Differential cost.B. Avoidable cost.C. Incremental cost.D. Historical cost.arrow_forward
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