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M16: Relevant Costs

M16: Relevant Costs. Cash Outlays and Sunk Costs Differential costs: Differ between alternatives Decisions based on: Dif in Rev. – Dif. in Costs. Examples. Special Orders: Take care between competitors (Robinson Patman Act)

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M16: Relevant Costs

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  1. M16: Relevant Costs • Cash Outlays and Sunk Costs • Differential costs: Differ between alternatives • Decisions based on: Dif in Rev. – Dif. in Costs

  2. Examples • Special Orders: Take care between competitors (Robinson Patman Act) • Make or Buy: Once you buy can be difficulty to go back to making • Sell or Process on: If sell early, may give up ability to process on. • Limited Capacities: CM per unit of capacity used • Theory of Constraints: Maximize Revenue – Materials Costs

  3. M18: Activity, Customers • Overhead Allocation • Cost Objectives (Products), Pools, Allocation Bases • Service Department Costs: Direct, Step, Reciprocal • Activity Based Costing

  4. M20: Pricing, Other Product Decisions Understand the Value Chain Concept Economic versus Cost Based Pricing Target Costing Continuous Improvement Costing Benchmarking Sales

  5. M21: Budgeting/Planning Incremental, rolling average, zero-based Sales Operations—Production, purchases, sales/marketing, administration Cash flows—Collections, disbursements, balances Balance Sheet

  6. M23: Segment Reporting, Transfer Pricing, Scorecard • Cost, Revenue, Profit, Investment Centers • Organization: product lines, geography, customers, markets • Transfer Prices: Market, Cost (variable, full,), negotiated, dual • Balanced Score Card: Financial, Customer satisfaction, internal process, innovation/learning • Instructor--Value: new products, quality, earnings

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