Question

Incremental analysis is used to help companies make decisions involving a choice among alternative courses of action. We use incremental analysis in our own decision making as well. Provide a hypothetical example from your personal life of how you might use incremental analysis in making a decision.

Answer 1

Incremental Analysis:

It is used to make decision between the multiple option whether to pursue ,or not to pursue. In financial way we can use it in the form of taking decision to help companies to perform better in the day to day activities.

Personal Life Example:

This example is based on a decision whether to pursue in the same company or to shift the company to manage the oncoming expenses. The story goes in such a way as follows.

For example before marriage I used to work in Company A which pays me salary of Rs. 30,000 per month. I used to stay with friends in a sharing room basis. The cost of rent was around Rs.3,000 per month. Other expenses include breakfast ,lunch and Dinner coming to around Rs. 7,500. Travelling expenses from office to home and vice versa is around Rs.3,000. Other miscellaneous expenses which includes current bill, medical expenses etc comes to around roughly Rs.5,000.Adding up all these is giving me the expense for a month as Rs.18500. The savings amount is around Rs.11,500 per month.

But after marriage the expenses has been increased. Expenses such as Rent Rs.12,000, Grocery Rs.3,000 , Travelling Charges Rs.7,500,Shopping Rs.1,000 Vegetables Rs.1,500 , House Maid Rs.1,500 ,Outing Rs.2,000 and miscellaneous 5,000. All the expenses adding up to 33,500. Hence decided to shift the company with a 50% increment in Company B. So the salary became 45000. The savings now came to Rs 11,500.