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Relevant Information for Decisions Background. Relevant Information Two primary characteristics distinguish relevant from useless information: Two primary.

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Presentation on theme: "Relevant Information for Decisions Background. Relevant Information Two primary characteristics distinguish relevant from useless information: Two primary."— Presentation transcript:

1 Relevant Information for Decisions Background

2 Relevant Information Two primary characteristics distinguish relevant from useless information: Two primary characteristics distinguish relevant from useless information: 1.Relevant information differs among the alternatives under consideration. 2.Relevant information is future oriented. Two primary characteristics distinguish relevant from useless information: Two primary characteristics distinguish relevant from useless information: 1.Relevant information differs among the alternatives under consideration. 2.Relevant information is future oriented.

3 Relevant (Differential) Revenues Relevant revenues must (1) be future oriented and (2) differ for the alternatives under consideration. Since relevant revenues differ between the alternative, they are sometimes called differential revenues.

4 Sunk Cost A sunk cost has been incurred in the a past transaction and cannot be changed, they are not relevant for making current decisions.

5 Relevant (Avoidable) Costs Unit-level Activities Batch-level Activities Product-level Activities Facility-level Activities Avoided by eliminating one unit of product. Avoided when a batch of work is eliminated. Avoided if a product line is eliminated. Some costs may be avoided if a product line is eliminated.

6 $ Cost per unit - $658,500 ÷ 2000 = $ Here is budgeted cost information for Premier, a company that produces printers. The company has enough capacity to produce additional printers, but is planning to produce to meet current demand.

7 Differential Analysis – What if Production is Increased to 2,500 units Difference in per unit costs results from reduction of fixed cost per unit.


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