Management Accounting
Gildan Activewear is a multinational company that produces casual wear offshore and distributes to retailers such as GAP, Hudson’s Bay Company, and Old Navy. The company’s managers require excellent information to decide what quantities of material to purchase, where to manufacture the products, and whether to expand or close manufacturing facilities. 11
Decision Making and Relevant
Information
C h a p t e r
Working
Working with managers to make decisions is one of the main functions of the management accountant and an important thrust of this book. The use of accounting information for decision making has been a consistent theme in earlier chapters. In this chapter, we focus on specific and common decisions such as accepting or rejecting a one-time-only special order, insourcing or outsourcing products or services, and replacing or keeping equipment. We place special stress on the importance of distinguishing between relevant and irrelevant financial information when making these decisions.
L e a r n i n g Ob j e c t i v e s
After studying this chapter, you should be able to
1. Describe a five-step sequence in the decision process 2. Distinguish relevant costs and revenues from irrelevant costs and revenues in any decision situation
3. Understand the difference between quantitative factors and qualitative factors in decisions
4. Identify two potential problems in relevant-cost analysis 5. Describe the opportunity cost concept; explain why it is used in decision making
6. Describe the key concept in choosing which among multiple products to produce when there are capacity constraints 7. Discuss the key issue managers must consider when adding or dropping customers and segments
8. Explain why the book value of equipment is irrelevant in equipment replacement decisions
9. Explain
Note that the differences in costs across the columns in Panels A and B are the same: The cost of alternative 3 is $1,500,000 less than the
Decision Making and Relevant
Information
C h a p t e r
Working
Working with managers to make decisions is one of the main functions of the management accountant and an important thrust of this book. The use of accounting information for decision making has been a consistent theme in earlier chapters. In this chapter, we focus on specific and common decisions such as accepting or rejecting a one-time-only special order, insourcing or outsourcing products or services, and replacing or keeping equipment. We place special stress on the importance of distinguishing between relevant and irrelevant financial information when making these decisions.
L e a r n i n g Ob j e c t i v e s
After studying this chapter, you should be able to
1. Describe a five-step sequence in the decision process 2. Distinguish relevant costs and revenues from irrelevant costs and revenues in any decision situation
3. Understand the difference between quantitative factors and qualitative factors in decisions
4. Identify two potential problems in relevant-cost analysis 5. Describe the opportunity cost concept; explain why it is used in decision making
6. Describe the key concept in choosing which among multiple products to produce when there are capacity constraints 7. Discuss the key issue managers must consider when adding or dropping customers and segments
8. Explain why the book value of equipment is irrelevant in equipment replacement decisions
9. Explain
Note that the differences in costs across the columns in Panels A and B are the same: The cost of alternative 3 is $1,500,000 less than the