DIFFERENTIAL COST Meaning and
Definition
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Differential cost is a financial term that refers to the difference in cost between two or more alternative courses of action. It is used in decision-making processes to analyze the financial impact of choosing one option over another. The concept of differential cost helps to determine the incremental cost or benefit that arises from a particular choice.
Differential cost is derived by subtracting the cost of one option from the cost of an alternative option. For example, in a manufacturing company, the differential cost may be calculated by subtracting the cost of producing one product from the cost of producing another product with a different set of materials or processes. This calculation allows managers to evaluate the cost implications of producing different products.
By analyzing differential costs, companies can make informed decisions when faced with various alternatives. It helps managers identify the most cost-effective option that maximizes profits or minimizes expenses. For instance, if a company is considering purchasing new machinery, the differential cost approach would involve comparing the cost of acquiring the new equipment against the cost of maintaining or repairing the existing machinery. The differential cost analysis would help determine if purchasing the new machinery is financially advantageous in the long run.
In summary, differential cost is the difference in cost between alternative options. It assists in decision-making by highlighting the financial impact of choosing one option over another. This allows companies to make informed decisions that optimize profitability and minimize costs.
Common Misspellings for DIFFERENTIAL COST
- sifferential cost
- xifferential cost
- cifferential cost
- fifferential cost
- rifferential cost
- eifferential cost
- dufferential cost
- djfferential cost
- dkfferential cost
- dofferential cost
- d9fferential cost
- d8fferential cost
- didferential cost
- dicferential cost
- divferential cost
- digferential cost
- ditferential cost
- dirferential cost
- difderential cost
Etymology of DIFFERENTIAL COST
The word "differential" comes from the Latin word "differens", which is the present participle of the verb "differre". "Differre" is a combination of two Latin words - "dis", meaning "apart", and "ferre", meaning "to carry" or "to bear". "Differens" means "carrying apart" or "setting apart".
The word "cost" comes from the Latin word "costare", which means "to stand at", "to cost", or "to be expensive". It is related to the Latin word "constare", which means "to stand firm" or "to be constant".
When "differential" is combined with "cost", the term "differential cost" refers to the cost difference or change between two alternatives or options. It represents the incremental or additional cost associated with choosing one option instead of another.
Similar spelling words for DIFFERENTIAL COST
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