Making decisions is one of the basic functions of a manager. To be successful in decision making, managers must be able to tell the difference between relevant and irrelevant data and must be able to correctly use the relevant data in analyzing alternatives. The purpose of this chapter is to develop these skills by illustrating their use in a wide range of decision-making situations. | Differential Analysis: The Key to Decision Making Chapter 7 Chapter 7: Differential Analysis: The Key to Decision Making Making decisions is one of the basic functions of a manager. To be successful in decision making, managers must be able to tell the difference between relevant and irrelevant data and must be able to correctly use the relevant data in analyzing alternatives. The purpose of this chapter is to develop these skills by illustrating their use in a wide range of decision-making situations. Relevant Costs and Benefits A relevant cost is a cost that differs between alternatives. 1 2 A relevant benefit is a benefit that differs between alternatives. Costs that differ between alternatives are called relevant costs. Benefits that differ between alternatives are relevant benefits. Identifying Relevant Costs An avoidable cost is a cost that can be eliminated, in whole or in part, by choosing one alternative over another. Avoidable costs are relevant costs. Unavoidable costs .
