Differential Revenue Definition In Management Accounting

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

Differential revenue definition in management accounting. Differential analysis involves analyzing the different costs and benefits that would arise from alternative solutions to a particular problem relevant revenues or costs in a given situation are future revenues or costs that differ depending on the alternative course of action selected differential revenue is the difference in revenues between two alternatives. 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. Differential cost is the difference between the cost of two alternative decisions or of a change in output levels. The concept of differential revenue is used in decision making based on the following situations.

The accountant s differential cost concept can be compared to the economist s marginal cost concept. Differential revenue is the difference in sales that will be generated by two different courses of action. When a company needs to decide which product to launch first. Differential revenue is the difference in revenue between any two alternatives.

The concept is used when there are multiple possible options to pursue and a choice must be made to select one option and drop the others. The textbook financial and managerial accounting defines differential revenue as the anticipated increase or decrease in revenue that results from one course of action. The terms differential cost and differential revenue used in managerial accounting are similar to the terms marginal cost and marginal revenue used in economics. 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.

When different revenue generating alternatives are compared the differential cost as well as differential revenues associated with each alternative is taken into account. 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. Choosing between two alternatives. When a company invests in a new market.