20.3.6. Incremental and Differential Costs

Try these first

1. 1.

   What is an incremental cost?

   Hint

   Think about costs associated with increasing production.

2. 2.

   Give an example of differential costs.

   Hint

   Look at two different options and how they compare in cost.

3. 3.

   What are incremental costs?

   Hint

   Consider costs that only arise when you make a change.

4. 4.

   Is the differential cost relevant in decision making?

   • True
   • False

   Hint

   Think about decisions you make based on cost comparisons.

5. 5.

   Calculate the incremental costs if a company needs to hire 5 extra employees at ₹30,000 each for a seasonal project, including ₹50,000 in additional materials.

   Hint

   Add wages and other direct expenses together.

6. 6.

   A company is evaluating two software solutions costing ₹1,00,000 and ₹75,000. Calculate the differential cost and discuss how this affects decision-making.

   Hint

   Compare the features against the cost difference.