Explain difference between differential & financial analysis

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Reference no: EM1349015

A frequent activity in managerial accounting is differential 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:

Can you explain the difference between differential analysis and financial analysis?

Reference no: EM1349015

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