meaning of Differential costing

It is the change in cost, due to change in the output or change in sale. It may be increase or decrease in cost. For example present cost is 300000 if work is done by labour and if the work is done by machines the expected cost is 200000 so the differential cost is 100000 so the management has to decide regarding the replacement of labour by machines as it will increase profit by 100000.

Differential costing —– in this fixed cost is considered. It also helps in taking managerial decisions. It is ascertained on the basis of absorption costing as well as marginal cost.

Marginal costing———in this fixed cost is not added to get marginal cost of the product. It is calculated on the basis of contribution. It also helps in knowing the key factor, contribution, p/v ratio. It is also helpful in accounting records.