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6 May, 2015 - 17:10

The information needed for many business decisions requiring to choose between several alternatives, goes beyond the data provided in the financial statements and involves expected or future revenues and costs. In this analysis of expected numbers, only what changes is relevant: what does not change is irrelevant. Thus, the name given to this analysis as differential or incremental. Note that, while variable cost do naturally vary, some fixed cost can also change in some of these decisions. Note also that past costs are irrelevant: they called sunk costs.