Chapter 11, Problem 1DQ

Explain the meaning of (A) differential revenue, (B) differential cost, and (C) differential profit (loss).

To determine

Explain the meaning of differential revenue, differential cost and differential income.

Explanation of Solution

Differential Analysis: Differential analysis refers to the analysis of differential revenue that could be gained or differential cost that could be incurred from the available alternative options of business.

The differential analysis takes into consideration the following things:

1. a) Differential revenue: Differential revenue is the analysis of the revenues from different avenues that could be earned from the available alternative options of business, in order to run a more efficient business.
2. b) Differential cost: Differential cost is the analysis of the costs in different avenues, which could be incurred for the available alternative options of business, to find the more cost effective business proposal.
3. c) Differential income: Differential income is the analysis of the various incomes that could be generated from the available alternative options of business.