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Chapter 7 Summary

  • Submitted by: anonymous
  • on December 2, 2013
  • Category: Miscellaneous
  • Length: 400 words

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Below is a free excerpt of "Chapter 7 Summary" from Anti Essays, your source for free research papers, essays, and term paper examples.

Chapter 7 Summary
Chapter 7 is about Incremental Analysis which sometimes involves changes that at first glance might seem contrary to your intuition. Although income taxes are sometimes important in incremental analysis, they are ignored in the chapter for simplicity’s sake. There are key cost concepts in incremental analysis relevant cost these are the costs and revenues that differ across alternatives, opportunity cost are the potential benefit that is lost when one course of action is chosen rather than an alternative course of action, and sunk cost a cost that cannot be changed or avoided by any present or future decision. A number of different types off decisions involve incremental analysis. The more common types of decisions are whether to: accept an order at a special price, make or buy component parts or finished products, sell products or process them further, retain or replace equipment, and eliminate an profitable business segment. In this chapter it teaches us how to identify the steps in management’s decision making process. Management’s decision-making process consists of identifying the problem and assigning responsibility for the decision, determining and evaluating possible courses of action, making decisions, and reviewing the results of the decision. Incremental analysis identifies financial data that change under alternative courses of action. These data are relevant to the decision because they will vary in the future among the possible alternatives. The relevant costs are those that change if the order is accepted. These are typically variable manufacturing costs. The relevant information is accepting an order at a special price is the difference between the variable manufacturing costs to produce the special order and expected revenues. In a make-or-buy decision, the relevant costs are the variable manufacturing costs that will be saved, the purchase price, and opportunity cost. The decision rule for whether to sell or process materials...

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