Question

What do you mean by differential costing? explain its practical applications with the help of suitable examples?

Answer 1

A cost that varies with every alternative. This is useful in decision-making wherein each alternative has different cost and revenues. For example, a firm wants to change their promotion method, from a billboard which costs $70 to a TV advertisement which costs $100, the differential cost between the two choices is $30. If the expected revenue is higher than $30, then the firm's best choice would be the TV advertisement. See also marginal cost.


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