Final answer:
Differential analysis is used by managers to make decisions by comparing incremental costs and revenues. For example, assessing whether to discontinue a product involves calculating the differential profit or loss and presenting these findings with specific calculations from Excel to the supervisor.
Step-by-step explanation:
Managers often employ differential analysis to make various business decisions, such as whether to accept a special sales order, drop a product line, or make or buy a component. For instance, suppose you are assessing whether to discontinue a product. You would consider the costs and benefits of doing so, focusing only on the costs and revenues that will change as a result of the decision.
This might involve creating a spreadsheet in Excel listing all the incremental costs associated with the product (such as materials, labor, and overhead) and the incremental revenues the product generates. After that, the differential profit or loss can be calculated by subtracting the incremental costs from the incremental revenues. If the incremental revenues exceed the incremental costs, it may be beneficial to keep the product line; otherwise, discontinuing it might be a more sound decision.
In an email to your supervisor, you would present the findings with specific calculations and perhaps include a graph or chart from Excel that clearly depicts the cost-benefit analysis. The decision is made clearer with quantifiable data, making it easier for management to view the possible outcomes of either continuing or discontinuing the product line.