Differential vs. financial analysis
analysis. Differential analysis is about relevant costs for decision-making in
management accounting. Only those costs and benefits that “differ”
between alternatives are relevant in a decision. All other costs and benefits
are irrelevant and should be ignored. Differential analysis, for example, can
be applied to capital budgeting, since capital expenditures analysis involves
selecting among alternatives, such as Intel building a plant in Costa Rica, or
Ireland, or not at all to make special computer chips.
Managerial accounting has three main topical areas: cost
accounting, management control (Plan/budget/review), and differential analysis.
The accountant uses the term differential analysis, while finance person would
use financial analysis.
Question:
Explain the difference between differential analysis and financial analysis?
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