Summary Chapter 21 ~ Financial and managerial accounting 18th edition
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Course
Finance and Accounting (IBMTMO117R2)
Institution
Hogeschool Rotterdam (HR)
Book
Financial and Managerial Accounting 18e ed
Summary comes from 'Financial and managerial accounting 18th edition'. Written by Jan R. Williams, Susan F. Haka, Mark S. Bettner, Joseph V. Carcello.
The summary is arranged per paragraph with images from the book and the explanation described in dots. Formulas are clearly indicated.
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Chapter 25: Rewarding Business Performance. Financial & Managerial Accounting
Chapter 16 ~ Financial and managerial accounting 18th edition
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Finance and accountng Chapter 21 samenvatng
LO21.1 explain what makes informaton relevant to a particlar bcsiness deiision
Only informaton that varies among the alternatve courses of acton eing considered is relevant to
the decision. Costs or revenue that dies not vary among the alternatve courses of acton is not
relevant to the decision.
Incremental (or diferennala costs The increase or decrease in total costs incurred
y selectng one course of acton over another
Incremental (or diferennala revenue The increase or decrease in total revenue
earned y selectng one course of acton over
another
LO21.2 disicss the relevanie of opportcnity iosts, scik iosts, and oct-of-poiket iosts in making
bcsiness deiisions
An opportunity cost is the enefts that could have een o tained y pursuing another course of
acton. Opportunity costs oten are su jeectve, ut they are important consideratons in any usiness
decision. Sunk costs on the other hand, have already een incurred as a result od past actons. These
costs cannot e changed regardless of the acton taken and are not relevant to the decision at hand.
Outcome-of-pocket costs will e incurred in the future and are relevant if they will vary the possi ly
course of acton.
Opportunity costs The enefts foregone y not pursuing an alternatve course of
acton. Opportunity costs are not recorded in the accountng
records ut are important in making many types of usiness
decisions
Out-of-pocket costs Costs that have not yet een incurred and that may vary among
alternatve courses of acton
Sunk costs A costs that has een incurred as a result of past actons. Sunk
costs are irrelevant to decisions involving future actons
LO21.3 cse iniremental analysis in iommon bcsiness deiisions
Incremental analysis is the technique of comparing one course of acton to another y determining
the diferent expected to arise in revenue and in costs.
LO21.4 Disicss how iontribcton margin ian be maximized when one faitor limits prodcitve
iapaiity
Identfy the producton input factor that limits the amount of output. Then determine the output mis
that maximizes the contri uton margin per unit of the limitng.
P *V =( V * (incremental varia les costs per unit)) + total incremental fxed costs
Joint price Products that share, in part, common materials and producton
processes.
Joint costs Costs incurred in manufacturing processes that produce several
diferent products. Jooint costs cannot e traced directly to the
individual types of products manufactured and, therefore, must e
allocated in more or less ar itrary manner.
Complementary Those products for which the sales of one may contri ute to the sales
products of another
Split-of point The point at which separate and distnct jeoint products emerge from
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