What does differential cost mean in a managerial decision?
Correct answer: B. The change in total cost caused by choosing one alternative over another
- A. The total cost incurred in a previous accounting period
- B. The change in total cost caused by choosing one alternative over another
- C. The average cost assigned to each unit of output
- D. The fixed cost that remains after production stops
Explanation
Differential cost is the difference in total cost between two possible courses of action. It helps management compare alternatives and may include changes in both variable and fixed costs.
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About Cost Accounting
Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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