Title: Relevant Costs and Decision Making
Course: BAC300: Management Accounting I (PEBL) > Section: LESSON FIVE: Relevant Costs and Decision Making

5.1 Introduction

Lesson-level overview | Lesson/week/section | 5.
Lesson name: | Relevant Costs and Decision Making
Aim of the lesson: | This lesson introduces you to relevant costs and helps you evaluate relevant costs and make short-term decisions.
This lesson covers:
- Relevant costs
- Short-term decisions
- Typical short- term decisions
Intended learning outcomes:
At the end of this lesson, you will be able to:

1. Discuss the relevant costs
2. Evaluate the short-term decisions
3. Examine typical short- term decisions

Overview of student activity:
1.Pre-lesson activity – Watching a video on relevant costs for decision making

2. Tutorial groups 5-minute class presentation on relevant costs for decision making

3. Engaging in e-tivities 5.1, 5.2, 5.3 that involves  reading linked resources and watching videos to get more details on relevant costs

4. Interactions on the discussion forums

Constructive alignment of lesson level outcomes with module level outcomes, learning activities and assessment

(Pressing <Tab> at the end of the table will provide additional rows in the table, if required.)
Intended Lesson learning outcomes: | No of module-level outcome | Activity where students engage with this outcome | Where and how is this outcome assessed?
At the end of this lesson, you will be able to:
1. Discuss relevant costs. | 3 | 5.1 | 5.1 (a) Essay question
1. Explain the short-term decisions. | 3 | 5.2 | 5.2 (a) Essay question
1. Examine typical short- term decisions. | 3 | 5.3 | 5.3 (a), (b) and (c) Calculation questions

Detailed explanation of ALL student and teacher engagement with the Lesson:

In this lesson, you will first watch a video on key preparations and considerations to make when arriving at short term decisions and then  engage in e-tivities 5.1. and 5.2 on relevant costs before reading more resources on making of short-term decisions in 5.3. You will be expected to interact with your peers in your tutor groups in the discussion forums in the e-tivities.

Pre-lesson activity: | Number of hours | 1 |
Watch the video on relevant costs for decision making and in groups of five, prepare a 5 minutes presentation summarizing the key preparations and considerations to make when arriving at short term decisions.

video

Face to face time: (if applicable) | Number of hours | 1 |
1. Explain the learning outcomes
  1. Explain the link between the previous lesson and the current one
  2. Present the key preparations and considerations to make when arriving at short term decisions

E-tivity 5.1 -

Online activity: | Number of hours | 1
What should students do?
E-tivity 5.1

You have already watched the video about the relevant costs for decision making in pre-lesson activity, and made a five minutes presentation on the  key preparations and considerations to make when arriving at short term decisions. Read more about relevant costs and then:

(a) Discuss the relevant costs for decision making.

(b) Post your answers on the discussion forum 5.1. Read what three of your colleagues in the tutorial group have posted and note other relevant costs in decision making.  Add any new relevant cost to your notes.
Where do they do it? | On the discussion forum 5.1
By when should they do it? | Before the next lesson.
E-moderator/tutor role
Listen to student’s presentation and read their answers on discussion forum 5.1 and provide feedback.
How are the learning outcomes in this lesson assessed? | Number of hours | 1
Essay questions, Assessing the answers given by various groups in the pre-topic activity
How does this section link to other sections of the module?
It is a continuation of lesson 4 in that it introduces relevant costs for decision making and also forms the basis for the concepts used in the next lesson which is capital budgeting.

E-tivity 5.2

= Total number of hours | 4 |
Online activity: | Number of hours | 1
What should students do?
E-tivity 5.2

Watch these short videos on pricing, special order, outsourcing, discontinue operations, further process, product mix and read Principles of Managerial Accounting (Page 51-65),  about short term decisions and then:

(a) Explain the following short-term decisions on discussion forum 5.2.

(i) Sell-further process decision

(ii) Make-buy decision

(iii) Add-eliminate decision

(iv) Operate-shut down decisions

(v) Short term use of scarce resources

(vi) Joint outputs of common processing operations

(b) Once you have posted your answer on the discussion forum 5.2, read what three of your colleagues in the tutorial group have posted and add any new point to your notes.
Where do they do it? | On the discussion forum 5.2
By when should they do it? | Before the next lesson.
E-moderator/tutor role
Reading the answers on the discussion forum, focusing the discussion and providing feedback
How are the learning outcomes in this lesson assessed? | Number of hours | 1
5.2 (a) Essay question
How does this section link to other sections of the module?
It is a continuation of relevant costs for short-term decisions.

E-tivity 5.3

Online activity: | Number of hours | 1
What should students do?
E-tivity 5.3

Read the book Principles of Managerial Accounting (Page 51 -65) and material2  and then appraise the following short-term decisions:

(a)  A business sells own made wooden spoons at Sh.10 a piece in Nairobi after   spending Sh. 2 for material and sh. 6 for labour. An outlet in Kampala Uganda is offering sh. 9 apiece.

Do you think the offer should be accepted? Give two reasons for your answer.

(b) A limited operating at 40% capacity and is considering closing down its factory for one year, after which time the demand for its product is expected to increase substantially. The following data applies.

              Sh.

Sales value at 40% capacity 120,000

Variable costs of sales at 40% capacity    80,000

Fixed costs  100,000

Fixed costs which will remain if the factory is closed amount to sh. 40,000. The cost of closing down operation will amount sh. 8,000

Prepare a statement to show the best course of action.

(c) B limited operates at normal capacity. it manufactures 400,000 units of a product per year. The unit cost manufacturing at normal capacity is as follows:

               Sh.

Direct materials  15.60

Direct labour    4.20

Variable overheads    5.00

Fixed overheads    8.00

Selling price  42.00

During the next three months, only 20,000 units can be produced and sold. Management plans to shut down the plant, estimating that the manufacturing overhead can be reduced to sh. 148,000 for the quarter when the plant is not operating; the fixed overhead costs are incurred at uniform rate throughout the year. Additional costs of plant shutdown for 3 months are estimated at sh. 28,000.

Examine if the plant should shut down for 3 months with relevant calculations

(d) Once you have posted your answers on the discussion forum, read what three of your colleagues in the tutorial group have posted and verify your answers and make corrections to your answer if necessary.
Where do they do it? | On the discussion forum 5.3
By when should they do it? | Before the next lesson.
E-moderator/tutor role
Focusing learners on the correct calculation and providing feedback
How are the learning outcomes in this lesson assessed? | Number of hours | 1
Calculations
How does this section link to other sections of the module?
It lays the foundation for long term decision making in the subsequent lessons.

Some important questions

Which learning resources/ references will scaffold the students’ learning?
1. MitchelL, F., Moyne, C. Patty, G. & Dixon, C. (2019) Principles of accounting, Vol 2:managerial accounting, OpenStax , Houston, Texas, Chapter 10.
2. Jonick, C. (2019) Principles of Managerial Accounting. Business

Administration, Management, and Economics Open Textbooks, Chapter 9.

1. Alldredge, D. (2017) Short term decision.
2. Lumen Learning, Accounting for managers. Short term decisions
How are students enabled to access the resources? | Learning Management System (LMS). OER Africa website |
Where in this lesson are students expected to work collaboratively? | Discussion forum 5.1,5.2 and 5.3 |
How has an inclusive approach been incorporated in this lesson?
1. Use of multimedia resources in the module and differentiated learning activities.
2. Use university computer labs, all resources are downloadable for offline use and discounted data bundles are available to students.
3. Use of accessibility button for learners with special needs on the LMS.
How will feedback on lesson be obtained from students? | Through the posts from other members of tutorial groups and feedback from the lecturer in the discussion forum 5.1,5.2 and 5.3 |
How will student feedback be used to improve lesson? | By incorporating suggestions in the course for the current and subsequent cohorts. |
At which point(s) will students receive formative feedback on the work they have done in the lesson? | Before the next lesson. |