Differential Costing and Incremental Costing Assignment Help

Differential Costing and Incremental Costing Assignment Help
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An Introduction to Differential Costing and Incremental Costing

Differential cost is the variation between the cost involved while making two alternative decisions or change in the output levels. This concept is implemented when there are many possible options that can be pursued and you must select a particular option out of many others. This concept is used particularly in step costing where producing an additional output unit involves additional cost. Incremental cost means the additional cost a business incurs to carry out specific functions like expanding the production level or adding a new item. If some action is taken, differential cost or incremental cost is the extra cost of an organization. The students who pursue Costing often take Differential Costing and Incremental Costing assignment help from BookMyEssay. A differential cost also referred to as incremental cost through incremental cost indicates the cost increase in choosing one alternative over another. On the other hand, the differential cost is a much broader term and it encompasses incremental costs as well as decremental costs. The differential cost concept of an accountant can be compared to the marginal cost concept of an economist. We at BookMyEssay have hired expert Cost Accounting writers who offer the students well-researched and well-versed Differential Costing and Incremental Costing assignment help online. After availing our accounting assignment help, students secure top grades in assignments.

Differential Costing and Incremental Costing

Differential cost is called incremental cost. It is the additional cost that we incur when we select one alternative over the other. These two costs are compared regarding the total costs. The difference between the total costs is called incremental cost. Differential cost analysis is undertaken for taking important decisions like make or buy, adding a product, changing the activity level, change in export orders, product mix, etc. In the differential cost analysis, the relevant costs are only considered. Fixed costs or costs related to earlier years are irrelevant. Future costs, which are the variable costs are considered. This analysis is used for making important management decisions and it has no relevance to book-keeping or accounting. No journal entry exists for the differential cost.

Applications of Differential Analysis

The differential analysis is used for making the following decisions:

  1. Setting prices for the products
  2. Accepting or rejecting any special order
  3. Adding or eliminating the segments, products, or customers
  4. Selling or processing the joint products
  5. Deciding whether to buy or make products

Differential Analysis is not used only in these five decisions but they represent the short-term decisions of the business. While applying the differential costing to pricing decisions, each price for a product represents indicates an alternative course. The sales revenue and the cost that differs in each of the alternatives are relevant while making the decisions. Total fixed costs remain the same in these pricing alternatives and therefore can be ignored. When selecting a product’s price, the objective is to choose a price where the total future revenues shall exceed the total future costs by a huge amount, thereby maximizing income. A high price may not always maximize income. If the product has many substitutes then when the company charges a high price, the number of units sold can reduce to a great extent because the customers can switch over to the low-priced competitive products. So, for maximizing income, expected sales volume is equally important as the contribution margin for a unit sold. For making a pricing decision, management should use the combination of volume and price. This combination is difficult to identify in a real situation as management may need to estimate the units that need to be sold at every price.

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