Study Guide Vol 2 t/a Accounting: Tools for Business Decision Makers, 5th Edition

Chapter 20

INCREMENTAL ANALYSIS

CHAPTER LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Identify the steps in management's decision-making process.
2. Describe the concept of incremental analysis.
3. Identify the relevant costs in accepting an order at a special price.
4. Indicate the relevant costs in a make-or-buy decision.
5. Identify the relevant costs in determining whether to sell or process materials further.
6. Identify the relevant costs to be considered in repairing, retaining, or replacing equipment.
7. Identify the relevant costs in deciding whether to eliminate an unprofitable segment or product.

PREVIEW OF CHAPTER 20

An important purpose of management accounting is to provide management with relevant information for decision making. This chapter explains management's decision-making process, and a decision-making approach called incremental analysis. The content and organization of this chapter are as follows:

CHAPTER REVIEW

Incremental Analysis

1. (L.O. 1) Management's decision-making process frequently involves the following steps:
   1. Identify the problem and assign responsibility.
   2. Determine and evaluate possible courses of action.
   3. Make a decision.
   4. Review the results of the decision.

   Accounting's contribution to the decision-making process occurs primarily in steps (b) and (d).

2. (L.O. 2) Business decisions involve a choice among alternative courses of action. ...