Chapter 7
The Use of Cost Information in Management Decision Making
Learning Objectives
- Explain the role of incremental analysis (analysis of incremental costs and revenues) in management decisions.
- Define sunk cost, avoidable cost, and opportunity cost and understand how to use these concepts in analyzing decisions.
- Analyze decisions involving joint costs.
- Discuss the importance of qualitative considerations in management decisions.
Jon Jensen is the owner/operator of Jensen's Rapid Copy, a large copy center located near Eastern State University.
Currently, the center is open from 6 A.M. until 8 P.M. seven days per week. However, Jon is considering two alternatives: (1) staying open until midnight or (2) staying open 24 hours a day.
To properly make this decision, Jon should perform incremental analysis. We touched on this topic in Chapter 1 and in subsequent chapters. Now we discuss it in more detail.
Decision Making/Incremental Analysis
INCREMENTAL ANALYSIS
All decisions involve a choice among alternative courses of action. In Chapter 1, we learned that the solution to all business problems involves incremental analysis—the analysis of the incremental revenue and the ...
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