Decision Making and Incremental Analysis

Decision Making and Incremental Analysis
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Decision Making and Incremental Analysis
Incremental analysis, also called relevant cost approach, differential or marginal analysis, is a decision-making approach. It is used by businesses to determine the actual cost variations between alternatives. This approach is crucial for business strategy. It is a problem-solving approach that applies accounting data to decision-making by analyzing the probable outcomes amongst various alternatives (Drury,2013). Three primary concepts apply in incremental analysis. These concepts include relevant cost, opportunity cost, and sunk cost. Incremental analysis or relevant cost approach integrates relevant accounting and financial data in decision-making. This approach also allows for the projection of outcomes for alternative options and outcomes.
The incremental analysis uses financial information to make decisions that involve initiating a new line of business, product introduction, and eliminating unproductive or unprofitable s...