What is the incremental analysis?

Incremental analysis is a technique used to help decide by assessing the impact of small or marginal changes. Its origin is associated with the principles of marginal analysis derived by economists such as Alfred Marshall during the nineteenth century. Given this inheritance, incremental analysis is also described as a procedure that helps the decision on the edge. The second and related principle is that if the past costs or negative negative or removable are not, it is irrelevant to the future decision. These two principles have a universal application. The incremental analysis manages many decisions in almost every discipline, including engineering, architecture, management, epidemiology, medicine, demography, sociology, consumers' behavior and investment management. Each problems, but especially for short -term decisions. In the short term, production capacity remains unchanged, so that due to capacity shifts, fixed costs do not differ due to capacity shifts. In the long run, production capacity is variable; In general, it will generally be afterLoaded to integrate into the incremental analysis.

The simple situation in everyday life provides an example of incremental analysis. Consider a worker leaving work on a journey home. They require food and can be purchased at slightly higher prices in the shop on the way from the workplace to the house or at lower prices by traveling to the store 3 miles (4.82 km) from home. The worker decides to buy food on the way home because there are no incremental travel costs and the incremental difference in food prices will be less than the value that the worker places on time and other costs needed to manage the more distant store.

In companies, the company normally uses incremental analysis to help a large range of decisions, including leasing versus, buying new assets, acquisitions and sale, expanding capacity and other raw material processing decisions. A key problem is usually the determination of incremental impact on KapiTálová expenses, costs and income. This is not always a clear cut before the event and often requires judgments.

For example, a manufacturing company that decides whether to receive new income in the form of a small order must usually find out which costs will change if the order is received. A large number of costs will remain fixed, including rental payments, insurance, local administration rates, cleaning costs and telecommunications rental costs. The cost of raw materials will increase. However, the impact of the cost of the factory is not clear. They can remain the same if there is sufficient sample in the system; If not, they may have to prove new tenants by analysis.

Incremental analysis is sometimes referred to as the analysis of incremental costs, relevant cost analysis or analysis of differential costs. These conditions may be confusing because they suggest that the technique focuses solely on costs, but it is incorrect. The incremental analysis is also relevant to the almost infinite diversity of other decision variablesH, including income, capital expenditure, time, consumer services, degrees and investment revenues.