Concept introduction:
Decision making plays an important role in the management. The decisions taken by managers are called managerial decisions. Managerial Decisions are decisions taken by managers for the operations of a firm. These decisions include setting target growth rates, hiring or firing employees, and deciding what products to sell. Manager’s decisions are taken on the basis of quantitative as well as the qualitative measures. The managerial decision includes the decisions like make or buy, accept or reject new offers, sell or further process etc. These decisions are taken on the basis of relevant costs.
Relevant costs are the costs that are relevant for any decision making. Relevant costs are helpful for take managerial decisions like make or buy, accept or reject new offers, sell or further process etc.
Two basic types of the relevant costs are as follows:
- Out-of-pocket costs
- Opportunity costs
To indicate:
The reason why sunk costs are considered as irrelevant for decision making.
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MANAGERIAL ACCOUNTING FUND. W/CONNECT
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- Costs that cannot be affected by any future action are called a. differential costs. b. sunk costs. c. inventory costs. d. relevant costs. e. joint costs.arrow_forwardWhy would management be concerned about the accuracy of product costs?arrow_forwardWhen deciding whether to sell as is or process a product further, managers should ignore which of the following? a. The costs of processing the product thus far b. The cost of processing further c. The revenue if the product is sold as is d. The revenue if the product is processed furtherarrow_forward
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- Samsung must confront sunk costs. Why are sunk costs irrelevant in deciding whether to sell a product in its present condition or to make it into a new product through additional processing?arrow_forward5) Choosing to outsource a component of a product or manufacture it internally is an example of a(n): A. Opportunity cost. B. Sunk cost. C. Out-of-pocket cost. D. Period cost. E. Fixed cost.arrow_forwardIn a make versus buy decision which of thefollowing factors is not relevant? fixed production costsreliability of supplierreliability of bought-in productsopportunity cost of alternative activitiesarrow_forward
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