Unit 5: Differential Analysis
In this unit, we examine how manufacturers decide whether to outsource elements of their operation. This decision process requires making a differential analysis to determine the revenues and costs for alternative courses of action. To do this, we will use the contribution margin income statement format. We will examine relatively simple and more complex examples to establish the format used to perform differential analysis.
Completing this unit should take you approximately 4 hours.
5.1: Using Differential Analysis to Make Decisions
5.2: Cost-Plus Pricing and Target Costing
5.3: Be Aware of Qualitative Factors
Unit 5 Assessment
Unit 5 Conclusion
This unit demonstrated how differential analysis can assist with many management decisions. Differential analysis builds on the contribution margin income statement. We also looked at two other costing strategies, cost-plus and target costs; both have their place in the managerial toolbox. In the next unit, you will delve into the why and how of master budgets.