ch 13 acc: Differential Analysis – The Key to Decision Making

These flashcards cover key concepts from Chapter 13 on Differential Analysis and Decision Making in Managerial Accounting.

What does differential analysis focus on in decision making?

Differential analysis focuses on future costs and benefits that differ between alternatives.

What is a differential cost?

A future cost that differs between any two alternatives.

What are relevant costs and benefits?

Relevant costs and benefits are those that should be considered in decision making.

What are sunk costs?

Sunk costs are costs that have already been incurred and cannot be changed regardless of the decision made.

What is an opportunity cost?

An opportunity cost is the potential benefit that is given up when one alternative is chosen over another.

What is the decision rule for adding or dropping a product segment?

A segment should be dropped only if its profit would increase.

What is a 'make or buy' decision?

A 'make or buy' decision is determining whether to produce a product in-house or purchase it from an external supplier.

What are joint products?

Joint products are two or more products that are produced from a single raw material input.

What does it mean to sell or process further in joint product costing?

It refers to deciding whether a joint product should be sold at the split-off point or processed further based on incremental revenue versus costs.

What is the constraint in production?

A constraint is a limited resource that restricts a company's ability to satisfy demand.