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    GRP 1 MANACC2 Powerpoint Presentation-2

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    Thembela Mkandla
    1. Differential cost analysis, also known as incremental cost analysis, is the analysis of cost differences between alternative solutions or decisions. It involves calculating the variable costs and fixed costs associated with each option. 2. An example is provided of a company considering increasing monthly production from 2500 to 3000 units by lowering the selling price. The differential costs - including manufacturing, administrative, fixed and contribution costs - are calculated for each option to determine the most feasible alternative. 3. Differential cost analysis aids decision making by evaluating the cost-benefit of various options related to pricing, special orders, product lines, customers, and make-versus-buy decisions. It helps identify the most cost-efficient alternative.

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    GRP 1 MANACC2 Powerpoint Presentation-2

    Uploaded by

    Thembela Mkandla
    19 views10 pages
    1. Differential cost analysis, also known as incremental cost analysis, is the analysis of cost differences between alternative solutions or decisions. It involves calculating the variable costs and fixed costs associated with each option. 2. An example is provided of a company considering increasing monthly production from 2500 to 3000 units by lowering the selling price. The differential costs - including manufacturing, administrative, fixed and contribution costs - are calculated for each option to determine the most feasible alternative. 3. Differential cost analysis aids decision making by evaluating the cost-benefit of various options related to pricing, special orders, product lines, customers, and make-versus-buy decisions. It helps identify the most cost-efficient alternative.

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    1. Differential cost analysis, also known as incremental cost analysis, is the analysis of cost differences between alternative solutions or decisions. It involves calculating the variable costs and fixed costs associated with each option. 2. An example is provided of a company considering increasing monthly production from 2500 to 3000 units by lowering the selling price. The differential costs - including manufacturing, administrative, fixed and contribution costs - are calculated for each option to determine the most feasible alternative. 3. Differential cost analysis aids decision making by evaluating the cost-benefit of various options related to pricing, special orders, product lines, customers, and make-versus-buy decisions. It helps identify the most cost-efficient alternative.

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    © All Rights Reserved
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    Download as pptx, pdf, or txt
    19 views10 pages

    GRP 1 MANACC2 Powerpoint Presentation-2

    Uploaded by

    Thembela Mkandla
    1. Differential cost analysis, also known as incremental cost analysis, is the analysis of cost differences between alternative solutions or decisions. It involves calculating the variable costs and fixed costs associated with each option. 2. An example is provided of a company considering increasing monthly production from 2500 to 3000 units by lowering the selling price. The differential costs - including manufacturing, administrative, fixed and contribution costs - are calculated for each option to determine the most feasible alternative. 3. Differential cost analysis aids decision making by evaluating the cost-benefit of various options related to pricing, special orders, product lines, customers, and make-versus-buy decisions. It helps identify the most cost-efficient alternative.

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    Download as pptx, pdf, or txt
    of 10

    MANAGEMEN • Questions:

    T & COST 1. Discuss on differential cost analysis.


    ACCOUNT 2 State what it is and its importance.

    (ACCT 232) 2. State circumstances where it is


    applied giving examples.
    3. How do you calculate differential
    cost?
    4. How is differential cost analysis is
    helpful in decision making?
    Group members
    • Sithembiso Sibanda - SU180600Q Patriciah Ngandu - SU190119N

    • Emmerson Mukanhami - SU190392B Abide Mushambi -SU190789Q

    • Melody N Hamadziripi - SU180593F Mafiko K Agatha -SU180513J

    • Tania Nyamasoka - SU190494F Lorren Nyathi - SU190775H

    • Gamuchirai Maponga - SU170352V Hilary Zembe - SU190079W

    • Thapelo Ndebele - SU150051H Farai Manjo -SU190261T

    • Barbara T Magaba - SU190523J


    Differential cost analysis also known as incremental cost analysis
    is the analysis of existing cost differences and perks arising from
    alternative solutions for a certain problem . It is comprised of
    variable costs or fixed costs or a combination of the two costs.

    Question 1 Importance of differential cost analysis

    • Effective decision making too.


    • Important method for determining how a business may price its products and
    services.
    • Aids in determining what the best approaches of branding, marketing and
    advertising to pursue whilst being cost-efficient without compromising quality.
    • Steps:

     Compute all costs associated with each alternative.


     Ignore all sunk costs.
     Ignore costs that remain largely constant among the
    alternatives.
     Select the alternative offering the best cost-benefit scenario.
    Calculating • Example
    differential cost
    • Solusi is a company that manufactures counter books. The
    monthly cost statistics are as follows:

    • Units made and sold per month 2500

    • Maximum production and sales capacity per month 4000

    • Selling price $1.5


    •`The breakdown of cost was as below:
    • Variable cost/unit Fixed cost/unit
    •Manufacturing $0.60 $50
    •Administrative $0.15 $25
    •Total $0.75 $75
    • 
    •They have an alternative to increase monthly production to 3000 by reducing the selling price to $1.45.
    •Required: Evaluate the feasibility of the option.
      Units Price Total

    Sales 2500 1,5 3750


    •Solution:
    Variable costs:       •Option 1: Present situation - Selling price $1.5

    Manufacturing costs 2500 0,6 1500 •Contribution = Sales – Variable costs

    •Profit = Contribution – Fixed cost


    Administrative costs 2500 0,15 375

    Fixed costs   75 75

    Contribution     1875

    Profit     1800
      Units Price Total

    Sales 3000 1,45 4350


    OPTION 2:
    Variable costs:      
    ALTERNATIVE
    Manufacturing
    costs 3000 0,6 1800 TO INCREASE
    Administrative THE
    costs

    Fixed costs
    3000

     
    0,15

    75
    450

    75
    PRODUCTION
    Contribution     2100

    Profit     2025
      Present option Alternative option Difference

    Sales 3750 4350 600

    Variable costs:      

    Manufacturing costs 1500 1800 300

    Administrative costs 375 450 75

    Fixed costs 75 75 0

    Contribution 1875 2100 225

    Profit 1800 2025 225

    DIFFERENTIAL COST ANALYSIS OF


    OPTIONS:
    • How differential cost analysis is helpful in decision
    making

    • Setting prices of products;

    • Accepting or rejecting special orders;

    • Adding or eliminating products, segments, or customers;

    processing or selling joint products; and

    • Deciding whether to make products or buy them


    The End

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