Importance Of Differential Analysis In Business Decisions

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In business decisions are made based on the analysis of the different factors that affect the business elements due to the nature of the business. The availability of data is the key case for providing accurate analysis on which decisions will be based. On the light of the above mentioned, this paper will provide a description for the differential analysis in dropping /keeping customers, product line offerings, and making or buying decisions. Also, discussion in this paper is going to involve the role qualitative information may have in differential analysis as well as sunk and opportunity cost and explaining why managers must consider those issues. In the first stage I will focus the light on what differential analysis means. Demonstrating …show more content…

That is also called (outsourcing). These two factors are the cornerstones that must be considered quantitative and qualitative analysis. Companies go for taking such decisions in case of reducing the capacity, having problems or difficulties with suppliers (Martin, (January 25, 2015)). Also, lack of expertise, small quantity requirement, the company's strategy of having multiple sources, lack of developed technology and so many other reasons could be behind Make-or-Buy decisions. When the company goes for in-house producing, the products must incur all the costs and expenses that are related to the products. On the other hand, if the company decided to go for the outsourcing the purchased product must include all the expenses up till the purchased products are received and stored. Multiple opinions are need to compare either the qualitative analysis, but the quantities aspect is …show more content…

Later on, the share price of company A rose to $1,200, whereas the share price of company B rose to $1,500. The different in the net profit of the two companies $500,000- $200,000= $300,000 is the opportunity cost if my company has chosen the company A to buy from. Managers should no relay on the sunk cost when making future decisions; therefore, they should not be taken into consideration as they can't be reserved. However, the opportunity cost should be taken into consideration by managers when they take decisions because it is an effective tool of making the best use of the company's money. Therefore, the differential analysis in dropping /keeping customers, product line offerings, and making or buying decisions and opportunity cost are so important financial analysis tools that should be used by finance manager for making the best investment and use of the company's money. Also, the qualitative information has have an important role in Make-or-buy decisions by analyzing the control over quality of the component, reliability of suppliers, impact of the decision on suppliers and customers. References Differential Analysis to Make Decisions. (n.d.). Retrieved from

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