Question

Discuss at least one example or scenario involving incremental analysis and how it is used.

Answer 1

Incremental analysis is a decision-making technique used in business to determine the true cost difference between alternatives. Also called the relevant cost approach, marginal analysis, or differential analysis, incremental analysis disregards any sunk cost or past cost. Incremental analysis is useful for business strategy including the decision to self-produce or outsource a function.

Incremental analysis is a problem-solving approach that applies accounting information to decision making. Incremental analysis can identify the potential outcomes of one alternative compared to another.Companies use incremental analysis to decide whether to accept additional business, make or buy products, sell or process products further, eliminate a product or service, and decide how to allocate resources.