CHAPTER 11 DECISION MAKING AND RELEVANT INFORMATION

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The five steps in the decision process outlined in Exhibit 11-1 of the text are: 1. Obtain information 2. Make predictions about future costs 3. Choose an alternative 4. Implement the decision 5.... Evaluate performance to provide feedback 11-2 Relevant costs are expected future costs that differ among the alternative courses of action being considered. Historical costs are irrelevant because they are past costs and, therefore, cannot differ among alternative future courses of action. 11-3 No. Relevant costs are defined as those expected future costs that differ among alternative courses of action being considered. Thus, future costs that do not differ among the alternatives are irrelevant to deciding which alternative to choose. 11-4 Quantitative factors are outcomes that are measured in numerical terms. Some quantitative factors are financial––that is, they can be easily expressed in monetary terms. Direct materials is an example of a quantitative financial factor. Qualitative factors are outcomes that are difficult to measure accurately in numerical terms. An example is employee morale. 11-5 Two potential problems that should be avoided in relevant cost analysis are: 1. Do not assume all variable costs are relevant and all fixed costs are irrelevant. 2. Do not use unit-cost data directly. It can mislead decision makers because a.it may include irrelevant costs, and [Show More]

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