Question

Explain the concept of incremental analysis. Is an incremental analysis often the most direct route to a business decision?

Answer 1

An incremental analysis is the method of analysing the change in revenue, cost, and volume that will result from a particular action or decision. It is a decision-making technique used in business to determine the true cost difference between alternatives. It determines the relevant revenues and/or costs of each alternative and the estimated impact of the alternative on future income. Yes, often the most direct route to a business decision is an incremental analysis because it fairly determines the change in costs if one alternative is selected over another.