Differential Analysis, Sunk Costs and Opportunity Costs

Differential analysis refers to the study of the different revenues and costs that would arise from alternative courses of action; the difference in revenues and costs among these alternatives is referred to as differential revenues and costs, relevant revenues and costs or incremental revenues and costs (Heisinger, K., & Hoyle, J. B., n.d.). When leadership is looking into making a decision between two or more alternatives in which costs could be lowered or revenues increased, differential analysis will help make a better informed decision. These are two very similar concepts but with different focus, differential revenue refers to the difference in revenues between several options, while differential costs refers to the difference in costs between several options (Chauvin, 2017).