After reading this article you will learn about the Similarities and Dissimilarities between Differential Cost Analysis and Marginal Costing.
Similarities:
Most often, marginal costing and differential costing are used as synonymous. But the two are not exactly the same in all respects.
The points of similarity and difference between the two are summarised as follows:
1. Both the differential cost analysis and marginal costing are the techniques of cost analysis and cost presentation.
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2. Both the techniques are used by the management in formulating policies and making decisions.
3. Differential costs and marginal costs are the same when fixed costs do not change with the change in the output.
Dissimilarities:
1. Fixed costs are excluded from marginal costs whereas differential cost analysis takes into consideration changes in fixed costs due to change in the output.
2. Marginal costs may be incorporated in the accounting system whereas differential costs do not find any place in the accounting records of a concern. Differential costs are determined separately from the analysis of accounting records.
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3. Differential cost analysis may be made both in absorption costing as well as marginal costing.
4. Margin of contribution, P/V ratio and contribution per unit of limiting factor are the main yardsticks for evaluation of managerial decisions in marginal costing. Whereas, in differential costing, differential costs are compared with incremental or decremental revenues for evaluating managerial decisions.