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Both vari-able costs and fi xed costs may be differential costs. Variable costs are differential when a decision involves possible changes in volume. For example, a decision to close a plant reduces variable costs and usually some fi xed costs. All of the affected costs are termed differential.
In making a decision, the costs and benefits of one alternative must be compared to the costs and benefits of other alternatives. The key to making such comparisons is differential ono/ys/s—focusing on the costs and benefits that differ between the alternatives. A difference in cost between any two alternatives is known as a differential cost.
22 cze 2023 · Differential analysis is a decision-making technique that examines the benefits and costs associated with each of two options and compares the net results of the two. The alternative selected is the one with the most favorable (or least unfavorable) financial impact.
Differential cost refers to the difference between the cost of two alternative decisions. The cost occurs when a business faces several similar options, and a choice must be made by picking one option and dropping the other.
When applying differential analysis to pricing decisions, each possible price for a given product represents an alternative course of action. The sales revenues for each alternative and the costs that differ between alternatives are the relevant amounts in these decisions.
22 maj 2024 · The key to making these decisions is called differential analysis-focusing on the pros and cons (costs and benefits) that differ between the two options. Differential cost can then be defined as the difference in cost between any two alternative choices.
Learning Objectives. Describe the format used for differential analysis. Differential revenues and costs1 (also called relevant revenues and costs or incremental revenues and costs) represent the difference in revenues and costs among alternative courses of action.
