chapter 13

chapter 13

Garrison−Noreen−Brewer:
Managerial Accounting,
11th Edition

13. Relevant Costs for
Decision Making

© The McGraw−Hill
Companies, 2006

Text

C h a p t e r

13

Relevant Costs for
Decision Making

LEARNING OBJECTIVES
After studying Chapter 13, you should be able to:

LO1

Identify relevant and irrelevant costs and benefits in a decision
situation.

LO2

Prepare an analysis showing whether a product line or other
organizational segment should be dropped or retained.

LO3

Prepare a make or buy analysis.

LO4

Prepare an analysis showing whether a special order should be
accepted.

LO5

Determine the most profitable use of a constrained resource and the
value of obtaining more of the constrained resource.

LO6

Prepare an analysis showing whether joint products should be sold at
the split-off point or processed further.

Garrison−Noreen−Brewer:
Managerial Accounting,
11th Edition

13. Relevant Costs for
Decision Making

Text

© The McGraw−Hill
Companies, 2006

Traveling on a Sunk Cost

A

failure to recognize the existence of sunk costs can lead to bad business decisions. As
evidence, consider the following incident described by a business consultant after encountering a frustrated and angry fellow traveler (“Mr. Smith”) whose flight home faced
a lengthy delay:
Mr. Smith had recently flown into St. Louis on a commercial airline for a two-day business trip.
While there, he learned that his company’s private airplane had flown in the day before and would
leave on the same day that he was scheduled to leave. Mr. Smith immediately cashed in his $200
commercial airline ticket and made arrangements to fly back on the company plane. He flew home
feeling pretty good about saving his company the $200 fare and being able to depart on schedule.
About two weeks later, however, Mr. Smith’s boss asked him why the department had been
cross-charged $400 for his return trip when the commercial airfare was...

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