Decision Making and Relevant
Information
Decision Model - answersA formal method of making a choice that often involves both
quantitative and qualitative analyses
Five-Step Decision Making Process - answersStep 1: Identify the problem and
uncertainties
Step 2: Obtain Information
Step 3: Make Predictions about the Future
Step 4: Make Decisions by Choosing Among Alternatives
Step 5: Implement the Decision, evaluate performance, and learn
Relevant Costs/Revenues - answersExpected future costs/revenues that differ among
the alternative courses of action being considered
Relevant Costs/Revenues MUST - answersOccur in the future
Differ among the alternatives
Sunk Costs - answersPast costs which are unavoidable and cannot by changed no
matter what action is taken
Quantitative Factors - answersOutcomes that are measured in numerical terms
Qualitative Factors - answersOutcomes that are difficult to measure accurately in
numerical terms; i.e. employee morale
One-Time-Only Special Orders - answersAccepting or rejecting special orders when
there is idle production capacity and the special orders have no long-run implications
(decision based on contribution margin)
Business Function Costs - answersThe sum of all costs (variable and fixed) in a
particular business function of the value chain, such as manufacturing costs
Full costs of the product - answersThe sum of all variable and fixed costs in all business
functions of the value chain
Potential Problems in Relevant-Cost Analysis - answersWatch for incorrect general
assumptions, such as all variable costs are relevant and all fixed costs are irrelevant
Unit-fixed-cost data can potentially mislead managers when irrelevant costs are
included and when the same unit fixed costs are used at different output levels
Information
Decision Model - answersA formal method of making a choice that often involves both
quantitative and qualitative analyses
Five-Step Decision Making Process - answersStep 1: Identify the problem and
uncertainties
Step 2: Obtain Information
Step 3: Make Predictions about the Future
Step 4: Make Decisions by Choosing Among Alternatives
Step 5: Implement the Decision, evaluate performance, and learn
Relevant Costs/Revenues - answersExpected future costs/revenues that differ among
the alternative courses of action being considered
Relevant Costs/Revenues MUST - answersOccur in the future
Differ among the alternatives
Sunk Costs - answersPast costs which are unavoidable and cannot by changed no
matter what action is taken
Quantitative Factors - answersOutcomes that are measured in numerical terms
Qualitative Factors - answersOutcomes that are difficult to measure accurately in
numerical terms; i.e. employee morale
One-Time-Only Special Orders - answersAccepting or rejecting special orders when
there is idle production capacity and the special orders have no long-run implications
(decision based on contribution margin)
Business Function Costs - answersThe sum of all costs (variable and fixed) in a
particular business function of the value chain, such as manufacturing costs
Full costs of the product - answersThe sum of all variable and fixed costs in all business
functions of the value chain
Potential Problems in Relevant-Cost Analysis - answersWatch for incorrect general
assumptions, such as all variable costs are relevant and all fixed costs are irrelevant
Unit-fixed-cost data can potentially mislead managers when irrelevant costs are
included and when the same unit fixed costs are used at different output levels
