Question

Differential costs can be qualitative or quantitative.

TRUE OR FALSE

Answer 1

Correct answer - False

Differential cost is quantitative in nature. Even though some qualitative factors are also considered but they are not termed as differential cost.

Differential cost is the additional cost of producing or taking up an alternative course of action such as fulfilling a special order, outsourcing a job, decision regarding make or buy, etc.

Let's say a company produces a component for its product at 5 per unit, excluding unavoidable fixed cost, and can but same component for 4.5 from market. We can see that differential cost is (5-4.5) in favour of buying component from outside.

Diffrential revenue is also taken in consideration when making a decision. Diffrential revenue is difference between revenues of two alternatives.