Differential Revenue Definition In Cost Accounting

The concept is commonly used when evaluating which of two or more investments to make in a business.

Differential revenue definition in cost accounting. In speaking of changes in cost and revenue the economists employ the term marginal cost and marginal revenue the revenue that can be obtained from selling one more unit of product is called marginal revenue and the cost involved in producing one more unit of a product is called marginal cost. The accountant s differential cost concept can be compared to the economist s marginal cost concept. What is the difference between a differential cost and an incremental cost. The difference in total revenues between alternative actions or plans.

For example a manager is pondering whether to invest in a new product line that will generate 1 000 000 of new sales or increase the marketing for an existing product line which will. Choosing between two alternatives. Differential cost is the same as incremental cost and marginal cost. This includes choosing between two things like two product lines two markets two sets of customers etc with the help of differential revenue and differential costs differential income can be calculated and helps in determining which alternative must be chosen.

Differential revenue is the difference in sales that will be generated by two different courses of action. The concept of differential revenue is used in decision making based on the following situations. Certificate payroll accounting.