Accounting 3 Certification Exam Questions and CORRECT Answers

key concept number 1Every decision involves choosing from among at least two alternatives. Therefore, the first step in decision making is to define the alternatives being considered. EX: if a company is deciding whether to make a component part or buy it from an outside supplier, the alternatives are make or buy the component part. Similarly, if a company is considering discontinuing a particular product, the alternatives are keep or drop the product. key concept number 2The key to choosing among alternatives is distinguishing between relevant and irrelevant costs and benefits. Relevant costs and relevant benefits should be considered when making decisions. Irrelevant costs and irrelevant benefits should be ignored when making decisions. This is an important concept for two reasons. First, being able to ignore irrelevant data saves decision makers tremendous amounts of time and effort. Second, bad decisions can easily result from erroneously including irrelevant costs and benefits when analyzing alternatives.