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Decision-Making Process

Series of steps including problem identification, information gathering, alternative evaluation, decision-making, implementation, and evaluation.

Relevant Costs/Benefits

Factors that change due to a decision and impact the choice among alternatives.

Irrelevant Costs/Benefits

Factors that remain constant regardless of the decision and do not affect the choice among alternatives.

Special-Order Decision with Excess Capacity

Relevant - Variable production costs; Irrelevant - Fixed overhead costs.

Make-or-Buy Decision

Relevant - Internal production cost vs. external purchase cost; Irrelevant - Sunk costs related to internal production.

Keep-or-Drop Decision

Relevant - Product contribution margin; Irrelevant - Historical costs of equipment.

Sell-or-Process Further Decision

Relevant - Additional revenue from further processing; Irrelevant - Costs before the split-off point.

Contribution Margin

Sales revenue minus variable costs.

Master Budget Preparation

Sequence of budgets including sales, production, direct materials, direct labor, overhead, expenses, cash, income statement, and balance sheet.

Operating Budgets

Include sales, production, and operating expenses budgets.

Financial Budgets

Include cash, capital expenditures, and financing budgets.

Behavioral Problems of Budgets

Issues like budgetary slack, gaming, and resistance to change.

Budgeted Cost of Goods Sold

Total costs linked to goods produced and sold in a specific period.

Budgeted Income Statement

Forecasts financial performance with revenues, expenses, and net income.

Cash Budget

Predicts cash inflows and outflows for operational cash availability.

Service Firms Budget Emphasis

Focus on operating budgets over manufacturing budgets.

Merchandising Firms Budget Emphasis

Prioritize sales and merchandise purchase budgets over manufacturing-related budgets.