Managerial Accounting Wild and Shaw Fourth Edition Wild and Shaw Fourth Edition McGraw-Hill/Irwin Copyright ? 2014 by The McGraw-panies, Inc. All rights reserved. Chapter 10 Relevant Costing for Managerial Decisions Conceptual Learning Objectives C1: Describe the importance of relevant costs for short-term decisions. 10- 3 A1: Evaluate short-term managerial decisions using relevant costs. A2: Determine product selling price based on total costs. Analytical Learning Objectives 10- 4 P1: Identify relevant costs and apply them to managerial decisions. Procedural Learning Objectives 10- 5 Decision making involves five steps: ? Define the decision task. ? Identify alternative courses of action. ? Collect relevant information and evaluate each alternative. ? Select the preferred course of action. ? Analyze and assess decisions made. Decision Making C1 10- 6 ? Are applicable to a particular decision. ? Should have a bearing on which alternative a manager selects. ? Are avoidable. ? Are future costs that differ between alternatives. 12 Relevant Costs C1 10- 7 Identifying Relevant Costs Historical costs are generally not relevant to decisions. Instead the relevant costs are the additional costs, called incremental, or avoidable, costs . -These are costs incurred if pany decides on a specific course of action. P1 10- 8 12 Sunk costs Out-of-pocket costs Opportunity costs All costs incurred in the past that cannot be changed by any decision made now or in the future. Sunk costs should not be considered in decisions . All costs incurred in the past that cannot be changed by any decision made now or in the future. Sunk costs should not be considered in decisions . Classification by Relevance: Sunk Costs Example: You bought an automobile that cost $10,000 two years ago. The $10,000 cost is sunk because whether you drive it, park it, trade it, or sell it, you cannot change the $10,000 cost. C1 10- 9 Future outlays of cash associate