Fixed costs are taken into account for differential cost analysis. Comment
Answers
Answered by
22
Fixed costs are expenses that are incurred irrespective of the scale of economic activity. An example of a fixed cost is rent.
Differential costing is a technique adopted for businesses. It is a method where mainly the differential costs are considered to be relevant. A differential cost is the difference in total costs between two alternative courses of economic action. The alternative actions may arise due to changes in sales volume, product mix, price etc which would assist the management of a commercial activity to decide whether to make or buy or continue with the existing production activity or stop production etc.
Fixed costs would not normally have to be taken into account in carrying out this exercise. However, some additional fixed costs may be incurred for increased sales volume; these will be considered for computation.
Differential costing is a technique adopted for businesses. It is a method where mainly the differential costs are considered to be relevant. A differential cost is the difference in total costs between two alternative courses of economic action. The alternative actions may arise due to changes in sales volume, product mix, price etc which would assist the management of a commercial activity to decide whether to make or buy or continue with the existing production activity or stop production etc.
Fixed costs would not normally have to be taken into account in carrying out this exercise. However, some additional fixed costs may be incurred for increased sales volume; these will be considered for computation.
Similar questions