M16: Relevant Costs

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
• OperationsProduction, purchases,
  sales/marketing, administration
• Cash flowsCollections, 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