ACC 561 Week 6 Team A

Khalid Salahuddin, Mike Hoffman, Vadim Dyachenko, James Blanco
ACC/561
September 24, 2014
Salil Sharma









Incremental Analysis
One very valuable tool for decision making that accounting can
supply is that of Incremental Analysis. Incremental analysis is a process
that identifies what financial data that may change if different competing
courses of action begin. For instance, if managers confronted with a
decision to offer a discount on sales merchandise, may look at how the cost
and profit will be different if they do not offer the discount. In
practice, incremental analysis different decision alternatives in columns,
while highlighting the probably key financial data in rows, such as
probable costs and revenues. An example is below:

(Kimmel, Weygandt, Kieso, 2009, pg. 1155)
In this way, a manager can see the side-by-side effects of
choosing each option. In the example above, net income would be $5,000
higher if Alternative B was chosen over Alternative A, using incremental
analysis. As can be seen, it is crucial in incremental analysis to
identify what data may change and what most likely will not. Fixed costs
may, in fact, be included in data that may change using incremental
analysis. Managers using this technique should be aware and compensate
appropriately.




References

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2009). Accounting: Tools
for business

decision making (3rd ed.). Hoboken, NJ: John Wiley & Sons