Differential analysis is useful in managerial decision making because it requires the manager to consider several alternatives before deciding a course of action.
Review this decision-making process in Using Differential Analysis to Make Decisions from Managerial Accounting.
Review Figure 7.1 which presents an example of how to present a differential analysis.
Figure 7.1 Differential Analysis for Phillips Accountancy.
The goal of managerial decision making is to choose alternatives with the highest profit potential.
Review this decision-making process in Make-or-Buy Decisions from Managerial Accounting.
Review Figure 7.2 and Figure 7.3 which present examples of differential analysis:
Figure 7.2. Make-or-Buy Differential Analysis for Best Boards, Inc.
Figure 7.3 Summary of Differential Analysis for Best Boards, Inc.
Managers use differential analysis to decide whether to keep or discontinue certain product lines.
Review this decision making process in Product Line Decisions from Managerial Accounting.
Review Figure 7.5, Figure 7.6, Figure 7.8 and Figure 7.9 which present examples of how to make product line decisions.
Figure 7.5 Income Statement for Barbecue Company
Figure 7.6 Product Line Differential Analysis for Barbecue Company
Figure 7.7 Summary of Differential Analysis for Barbecue Company
Figure 7.8 Differential Analysis with Opportunity Cost for Barbecue Company
Using differential analysis to decide whether to keep a certain customer is much the same as using differential analysis to decide whether to keep certain product lines.
Review this decision-making process in Customer Decisions from Managerial Accounting.
Review Figure 7.9, Figure 7.10, Figure 7.11 and Figure 7.12 which present examples of how to evaluate customer profitability.
Figure 7.9 Income Statement for Colony Landscape Maintenance
Figure 7.10 Customer Differential Analysis for Colony Landscape Maintenance
Figure 7.11 Keep or Drop Customer
Figure 7.12 Summary of Differential Analysis for Colony Landscape Maintenance
Managers use differential analysis to decide whether they should accept special orders from customers.
Review this decision-making process in Special Order Decisions from Managerial Accounting.
The following two tables present examples of how to evaluate special order decisions.
Figure 7.13 Special Order Differential Analysis for Tony’s T-Shirts
Figure 7.14 Summary of Differential Analysis for Tony’s T-Shirts
Using proper cost accounting terminology is important for making a differential analysis.
Review the cost terms used in differential analysis in Review of Cost Terms Used in Differential Analysis from Managerial Accounting.
It can be difficult for custom manufacturers to calculate an appropriate sales price for their custom products.
Review cost-plus pricing and target costing in Cost-Plus Pricing and Target Costing from Managerial Accounting.
Companies should consider qualitative factors, in addition to quantitative considerations, when they conduct a differential analysis.
Review cost-plus pricing and target costing in Be Aware of Qualitative Factors from Managerial Accounting.