Show Menu

Managerial Accounting - Decision Making Process Cheat Sheet by

Management's Decision Making Process

Inform­ation used for Decision Making

Financial Inform­ation
Non-fi­nancial Inform­ation
Effect on employee turnover
Company's image

Accept­/De­cline an order at a special price

Criteria: Accept if Contri­bution Margin is positive
- Other products not affected by special price
- Other customers don't get special price
No change in fixed costs, only variable cost change

Retain or replace equipment

Criteria: Replace if new asset increases net income
Book value: original cost of asset
Salvage Value: money earned when reselling asset
Useful Life: how long asset is expected to generate revenue

Elimin­ate­/Retain unprof­itable business segment

Criteria: drop item if improves net income, retain segment unless FC > lost CM
Need to know if FC are
- Avoidable
- Unavoi­dable: must be allocated on remaining segments

Allocate limited ressources

Criteria: select product that maximizes net income
Short term decision: focus on product with greatest CM unit
Long term decision: can constraint be reduce­d/e­lim­inated
- Change CM unit
- Remove limita­tions on ressources

Increm­ental Analysis Approach

Maximize net income
Identify expenses that vary with decisions

Key Cost Concepts

Relevant costs
Opport­unity Costs
Sunk Costs
Cost in future
Cost in past

Make/buy components or finished products

Criteria: Outsource if cost saving is positive
- Frees up capacity for other use
- Shifts production risks to the supplier
- Potential loss of quality control
- Hard to move back insource

Sell product or Process further

Criteria: Process further until revenue < costs
Produce multiple product simult­ane­ously from single raw material
- Some products can be sold as is
- Some products can be processed further
- Products identi­fiable from each other at split-off point

Theory of Constr­aints

Used to identify and manage constr­aints to achieve goals
Requires identi­fying and constant attempts to reduce­/el­iminate constraint


No comments yet. Add yours below!

Add a Comment

Your Comment

Please enter your name.

    Please enter your email address

      Please enter your Comment.

          Related Cheat Sheets

          Nature of Business and Accounting Cheat Sheet
          Accounting Principles and Business Transactions Cheat Sheet