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1、Chapter 14: Differential Cost Analysis,Differentiate relevant and irrelevant costs and benefits. Analyze the benefits and costs for the following decision making situations Solve a simple constraint problem using graphical analysis showing: Constraints Feasible solution space Objective function Opti
2、mum solution,Learning Objectives,Distinguish between relevant and irrelevant costs for decision-making How to use the relevant information to make a decision,1. Cost: Introduction,The production function measures the relationship between input and output. Given the production technology, managers mu
3、st choose how to produce. To determine the optimal level of output and the input combinations, we must convert from the output measurements to dollar measurements or costs.,2. Cost: definition,Cost = what you give up Examples Cost of launching a new product Cost of running your own business Cost ass
4、ociated with inventory Cost associated with equipment,专有名词,固定成本 Fixed Cost 变动成本 Variable Cost 平均成本 Average Cost 边际成本 Marginal Cost 机会成本 Opportunity Cost 沉没成本 Sunk Cost 可免成本 Avoidable Cost,期间成本 Period Cost 产品成本 Product Cost 直接成本 Direct Cost 间接成本 Indirect Cost 直接材料 Direct Material 直接人工 Direct Labor 经常
5、性支出 Overhead,3. Measuring Cost: Which Costs Matter?,Accounting Cost Consider only explicit cost, the out of pocket cost for such items as wages, salaries, materials, and property rentals,4. Measuring Cost: Which Costs Matter?,Economic Cost considers explicit and imputed cost. Imputed cost （附加/假设成本）i
6、s the cost associated with opportunities that are foregone by not putting resources in their highest valued use. Applies to all inputs: labor, equipment, structures, shareholders equity Opportunity cost = explicit cost + imputed cost Use cash flow comparisons to estimate,The Meaning of Relevance,Rel
7、evant costs and relevant revenues are expected future costs and revenues that differ among alternative courses of action.,Identifying Relevant Costs and Benefits,Sunk costs Costs that have already been incurred. They do not affect any future cost and cannot be changed by any current or future action
8、.,Sunk costs are irrelevant to decisions.,The Meaning of Relevance,Historical costs are irrelevant to a decision but are used as a basis for predicting future costs. Sunk costs are past costs which are unavoidable.,Relevant Costs,Worldwide Airways is thinking about replacing a three year old loader
9、with a new, more efficient loader.,Relevant Costs,If we keep the old loader, we will have depreciation costs of $25,000. If we replace the old loader, we will write-off the $25,000 when sold. There is no difference in the cost, so it is not relevant.,The new loader will be depreciated in one year.,R
10、elevant Costs,The $5,000 proceeds will only be realized if we replace the old loader. This amount is relevant.,Relevant Costs,We will only have depreciation on the new loader if we replace the old loader. This cost is relevant.,Relevant Costs,The difference in operating costs is relevant to the imme
11、diate decision.,Relevant Costs,Here is an analysis that includes only relevant costs:,Analysis of Special Decisions,Lets take a close look at some special decisions faced by many businesses.,We just received a special order. Do you think we should accept it?,Accept or Reject a Special Order,A travel
12、 agency offers Worldwide Airways $150,000 for a round-trip flight from Hawaii to Japan on a jumbo jet. Worldwide usually gets $250,000 in revenue from this flight. The airlines is not currently planning to add any new routes and has two planes that are idle and could be used to meet the needs of the
13、 agency. The next screen shows cost data developed by managerial accountants at Worldwide.,Accept or Reject a Special Order,Worldwide will save about $5,000 in reservation and ticketing costs if the charter is accepted.,Accept or Reject a Special Order,Since the charter will contribute to fixed cost
14、s and Worldwide has idle capacity, the company should accept the flight.,Accept or Reject a Special Order,What if Worldwide had no excess capacity? If Worldwide adds the charter, it will have to cut its least profitable route that currently contributes $80,000 to fixed costs and profits. Should Worl
15、dwide still accept the charter?,Accept or Reject a Special Order,Worldwide has no excess capacity, so it should reject the special charter.,Accept or Reject a Special Order,With excess capacity . . . Relevant costs usually will be the variable costs associated with the special order. Without excess
16、capacity . . . Same as above but opportunity cost of using the firms facilities for the special order are also relevant.,Outsource a Product or Service,A decision concerning whether an item should be produced internally or purchased from an outside supplier is often called a “make or buy” decision. Lets look at another decision faced by the management of Worldwide Airways.,Outsource a Product or Service,An Atlanta bakery has offered to supply the in-flight
