Active learning ideas
Relevant information for short-term decisions focuses on identifying which costs and revenues will change as a result of a specific choice. Students learn to ignore 'sunk costs' and focus on incremental and opportunity costs. This is a critical skill for business managers who must make decisions like whether to 'make or buy' a component, accept a 'special order' at a lower price, or drop an unprofitable product line.
Activity 01
Students act as a production manager (who wants to make) and a purchasing manager (who wants to buy from an external supplier). They must present their relevant cost analysis to the 'CEO' to justify their position.
How does revaluation of assets affect the equity of a company?
Activity 02
Groups are given a request for a one-time order at a price below the total cost but above the variable cost. They must identify the relevant costs and qualitative factors (like impact on existing customers) before making a recommendation.
What triggers an impairment loss?
Activity 03
Students are given a scenario where $100,000 has already been spent on a failed project. They individually decide whether to spend another $20,000 to finish it, then pair up to discuss why the $100,000 should not influence their decision.
How do different depreciation methods impact reported profits over time?
A few notes on teaching this unit
Watch Out for These Misconceptions
All fixed costs are irrelevant.
Only *unavoidable* fixed costs are irrelevant. If a fixed cost can be saved by dropping a product line (avoidable fixed cost), it becomes relevant to the decision. Peer-led 'cost sorting' exercises help students distinguish between avoidable and unavoidable costs.
A product line should always be dropped if it shows a net loss.
If the product line still provides a positive contribution margin that covers some unavoidable fixed costs, dropping it might actually decrease the company's total profit. Using a 'before and after' profit table in groups helps students see the total impact on the business.
Methods used in this brief
Incomplete Records and Single Entry Systems
Teaches techniques to derive financial statements from incomplete accounting records. Students use control accounts and mark-up/margin ratios to find missing figures.
8 methodologies
Ethics in Accounting
Examines the ethical responsibilities of accountants and the impact of unethical behavior on stakeholders. Students analyze real-world corporate scandals.
8 methodologies