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Differential cost, Incremental cost and Incremental revenue: Differential cost (which may be incremental or decremental cost) is the difference in total cost that will arise from the selection of one alternative instead of another. It involves the estimation of the impact of decision alternatives on costs and revenues. The two basic concepts which go together with this type of cost analysis are incremental revenue and incremental costs. Incremental revenue is the change in the total income resulting from a decision. Incremental costs represent a change in the total costs resulting from a decision. Such a change in cost is not necessarily variable in nature.
Application of Incremental/Differential Cost Techniques In Managerial Decisions:
The areas in which the above techniques of cost analysis can be used for making managerial decisions are:
- Whether to process a product further or not.
- Dropping or adding a product line.
- Making the best use of the investment made.
- Acceptance of an additional order from a special customer at lower than existing price.
- Opening of new sales territory and branch.
- Make or Buy decisions.
- Submitting tenders
- Lease or buy decisions
- Equipment replacement decision.====================================================================Disclaimer: This site is mainly dedicated for Students of CA, ACCA, CIMA, CMA, CGA, CPA, CFA, BBA, MBA and related students of other colleges and universities in Accounting, Management Accounting and Cost Accounting , Students of Higher Education in Accounting, Admission in Accounting Schools, Scholarship in Accounting, Students of MBA, University admission information, College of Accounting, Accounting Notes, Accounting Training, Accounting Tuition, Accounting Study Guidelines, Management Accounting
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