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Differential Analysis

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Accounting
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Keiser University
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Discuss Differential Analysis
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Discuss Differential Analysis
Differential Analysis involves the examination and analysis of various costs and
associated benefits that have their origin from alternative solutions to specific complexities
(Walther, 2020). For instance, if a company intends to produce or launch a new product, the
managers have the responsibility to determine if the organization should produce the
component parts or purchase them from a supplier. Relevant revenue and cost in a given
circumstance are associated with specific cost and revenues that significantly differ
depending on the decision taken by the managerial accountant. Notably, differential revenue
involves the deviation in revenue between two alternative causes of action (Walther, 2020).
On the other hand, expense or differential cost is the difference or deviation between
relevant cost between two causes of actions or decisions. Future costs that are constant
between different causes of action and are deemed irrelevant and thus may be overlooked
since they affect both alternatives in a similar way (Noreen et al., 2020). However, sunk costs
are not relevant in the process of decision making since they have already been incurred by
the organization; hence such cost cannot be altered irrespective of the cause of action taken.
Some types of sunk cost are not different between various alternatives. Under such
circumstances, the management accountant should select the cause of alternative that have
less cost. However, in some circumstance, the cost may be similar among alternatives.
Subsequently, the organization should select the cause of action that yields the largest amount
of revenue (Noreen et al., 2020). In most circumstance, the future cost and revenue are
different among alternatives. In both cases, the management should choose the cause of
action that has the greatest positive deviation between future cost and revenue.
Assuming that Mark invests $ 400 in a tiller business agreement enabling him to till a
garden and earns an income of $1500, during the summer. However, after some time, Mark

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1 Discuss Differential Analysis Student’s Name Institutional Affiliation Course Number and Name Professor’s Name Assignment Due Date 2 Discuss Differential Analysis Differential Analysis involves the examination and analysis of various costs and associated benefits that have their origin from alternative solutions to specific complexities (Walther, 2020). For instance, if a company intends to produce or launch a new product, the managers have the responsibility to determine if the organization should produce the component parts or purchase them from a supplier. Relevant revenue and cost in a given circumstance are associated with specific cost and revenues that significantly differ depending on the decision taken by the managerial accountant. Notably, differential revenue involves the deviation in revenue between two alternative causes of action (Walther, 2020). On the other hand, expense or differential cost is the difference or deviation between relevant cost between two causes of actions or decisions. Future costs that are constant between different causes of action and are deemed irrelevant and thus may be overlooked since they affect both alternatives in a similar way (Noreen et al., 2020). However, sunk costs are not relevant in the process of decision making since they have already been incurred by the organization; hence such cost cannot be altered irrespective of the cause of action taken. Some types of sunk cost are not different between various alternatives ...
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