Page 25 - Managerial Accounting-MGT 145

Module 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.

Usage of the contribution margin in the income
statement. We will examine a relatively simple and
more complex examples to establish the format used to

perform differential analysis.

Using Differential Analysis to Make Decisions:

• use differential analysis for make-or-buy decision;

• use differential analysis to decide whether to keep
or drop product segment;

• use differential analysis for special order decisions;
• use differential analysis to determine the shutdown
point of production