Decision-making Techniques
Relevant costs, cost-volume-profit analysis, scarce resources, pricing, short-term decisions, risk and uncertainty.
How to study ACCA Applied Skills
Build on Applied Knowledge, use the correct UK law and tax versions, practise workplace-style digital responses and keep each independent 50% pass decision visible.
Core concepts
Concept 1
Relevant decision cash flows are future, incremental and avoidable; sunk, committed and non-cash allocations require separate treatment.
Exam cue: Define the decision alternatives and time horizon before identifying relevant cash flows.
Concept 2
Contribution, limiting-factor and linear-programming analysis supports constrained short-term choices.
Exam cue: Find the binding constraint and contribution per scarce unit before ranking products.
Concept 3
Expected values, sensitivity and decision criteria make risk assumptions visible but do not eliminate uncertainty.
Exam cue: State the probability, risk attitude and model limitation alongside a decision result.
Risk pitfalls and guardrails
Including sunk cost because it appears in the accounting records.
Guardrail: Do not reuse a legal rule, tax amount, reporting format, audit phrase or finance formula without checking scope, date, units and evidence.
Ranking products by contribution per unit when a different resource is scarce.
Guardrail: Do not reuse a legal rule, tax amount, reporting format, audit phrase or finance formula without checking scope, date, units and evidence.
Treating expected value as the outcome that will actually occur.
Guardrail: Do not reuse a legal rule, tax amount, reporting format, audit phrase or finance formula without checking scope, date, units and evidence.
Memory anchors
Relevant Cost
A relevant cost is a future cash flow that changes because of the decision.
Contribution
Contribution is revenue less variable cost and contributes toward fixed cost and profit.
Limiting Factor
A limiting factor constrains activity and should be allocated by contribution per scarce unit.
Shadow Price
A shadow price is the marginal value of one additional unit of a binding resource.
Expected Value
Expected value is the probability-weighted average of possible outcomes.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
A machine bought last year has no resale value and cannot be used elsewhere. What cost is relevant to a new order?
Material in inventory cost $8,000 but can now be sold for $6,500 or used in a contract. What is its relevant cost if no replacement is needed?
Answer all questions to submit.
Next step personalized recommendations
Continue learning
Move forward only after this module is stable.
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