DIFFERENTIAL COST ANALYSIS: Examples & Application to Businesses

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However, it would still be responsible for the $1,000 in fixed overhead costs. The estimated revenue is then calculated by multiplying the predicted output at a certain level by the selling price. Every month, the telecom operator spends $400 on newspaper ads and $100 introducing garmin xero a groundbreaking auto on website maintenance. The marketing director anticipates that the company will spend about $1,000 each month on television advertisements. In addition, the company will need to recruit a millennial at $250 a week to manage its social media marketing efforts.

Difference between Marginal and Differential Costing

  1. You might have to think creatively to figure out all of the things that will change under each of the proposals.
  2. The company may choose to continue producing in-house to avoid this additional cost.
  3. Among several alternatives, management opts for the most profitable one.
  4. The company might also consider factors like quality control, speed of production, the reliability of the third-party manufacturer, and more.
  5. As a result, businesses must reclassify costs as those that would change as a result of the action and those that would not.
  6. For instance, avoidable costs are costs that can be eliminated by choosing one option over another, such as closing a department.

#1. Determine the most lucrative production and pricing level

Module 11: Relevant Revenues and Costs