Unit 5: Differential Analysis
In this unit we examine how manufacturers decide whether to outsource elements of their operation, a decision process that requires making a differential analysis to determine the revenues and costs for alternative courses of action. As you work through this unit, notice you will use the contribution margin income statement format. We will examine a 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 has demonstrated how differential analysis can be used to assist with a myriad of management decisions. Differential analysis builds on the contribution margin income statement. Further costing strategies have also been provided, 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.