BUS105: Managerial Accounting

Managers often use differential analysis to determine whether to keep or drop a product line. Direct fixed costs are typically eliminated if a product line is eliminated and are, therefore, considered differential costs. Allocated fixed costs, however, are typically not eliminated if a product line is eliminated. Managers compare sales revenue and costs for each alternative (keep or drop) and select the alternative with the highest profit. Read section 7.3. to learn more.