Question

Why management uses differential cost in decision making?

Answer 1

There are many types of departments in the organisation. Such as Finance department, sales department, purchase department, Production department.


The cost of all these departments are different from each other. There is a need to find the total cost of each department because it helpful for management in decision making..


The motive of management to use differential cost is to serve the organisation as different cost also helps the different departments to take various decisions which automatically helps the management in decision making..


Hence management uses differential cost for decision making..

^_^❤

Answer 2

Explanation:

Differential analysis is useful in this decision making because a company's income statement does not automatically associate costs with certain products, segments, or customers. Thus, companies must reclassify costs as those that the action would change and those that it would not change.