Page 94 - DCOM206_COST_ACCOUNTING_II

Unit 5: Differential Costing

(e) Under marginal costing technique the performance is judged by the “contribution” and Notes
PV ratio, whereas under differential costing, the performance is evaluated by comparing
differential cost with incremental revenue.
(f) Marginal costing is a part of accounting system whereas differential cost analysis is not a
part of accounting system. It may be a part or budgeting.

(g) Marginal cost is expressed in terms of cost per unit whereas differential cost is expressed
in total.

Self Assessment

Fill in the blanks:
6. Marginal costing technique is useful in making decisions in the …………………… run.

7. …………………… cost is expressed in terms of cost per unit.
8. Under differential costing, the performance is evaluated by comparing differential cost
with incremental …………………….

9. Marginal costing presents cost information under …………………… margin approach.
10. …………………… costs are those that have already been incurred are irrelevant.
11. The …………………… of marginal costing is narrow.

12. Differential costing can be presented both under …………………… techniques.
13. …………………… is not a part of accounting system.
14. Differential cost can at best be defined as an increase or decrease of total cost owing to rise
or fall in …………………….
15. Marginal cost is expressed in terms of cost per unit whereas …………………… is expressed
in total.

5.2 Applications of Differential Costing

Differential costing techniques is used to solve the problems relating to the following:
(a) Make or buy decisions.
(b) Expanding the marketability of the products.
(c) Changing the product mix.

(d) Further processing of products.
(e) Changing the need of production.
(f) Introducing a new product line.
(g) Replacing manual labour with mechanical labour.

(h) Fixation of selling price below the competitive price.
(i) Accepting or rejecting a new order.
(j) Dealing with the most profitable level of production.
(k) Shut down or continuous operation.

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