Q25-14RQ - Horngren'S Financial And Managerial Accounting

Question

When completing a differential analysis, when are the differences shown as positive amounts? As negative amounts?

Step-by-Step Solution

Answer

Answer

If revenues increase from alternative one to two, it is positive, and if revenue decreases from alternative one to two, it is shown as negative. 

Step-by-Step Solution Step 1: Meaning of Differential Analysis

Differential analysis refers to the technique used by business entities to make decisions that examine the benefits and costs associated with the two available options and compare the net results.

Step 2: Negative and positive amounts in differential analysis

When completing a differential analysis, the differences are positive if the revenues or expenses from the second alternative are greater than the first alternative.

In addition, the differences are shown as negative if revenues or expenses from the second alternative are less than the first alternative.