What is differential revenue in accounting?

Differential revenue is the difference in sales that will be generated by two different courses of action. The concept is commonly used when evaluating which of two (or more) investments to make in a business.

What is differential accounting?

Differential accounting presents two or more possibilities along with the forecast revenue and costs of each. It compares the revenue and costs of the possibilities to each other, rather than to the company’s budget.

What are some examples of differential analysis in accounting?

For example, the differential amount of $1,000,000 for revenue indicates Alternative 1 produces $1,000,000 more in revenue than Alternative 2. The differential amount of $750,000 for variable costs indicates variable costs are $750,000 higher for Alternative 1 than for Alternative 2.

What is a differential income?

Differential income is the change in income compared with the change in income for another project or investment. Put another way, differential income is the difference in income of two or more projects or investments. It also can be used to identify differences outside of the investing world.

What is the formula for differential revenue?

Calculate the total revenues for each alternative and subtract the higher revenue alternative from the lower one to obtain differential revenue.

What is the amount of the differential revenue?

Differential revenue is the anticipated increase or decrease in revenue in one project, or investment, relative to the increase or decrease in revenue of another project or investment. Put another way, it’s the difference in revenue of two or more projects or investments.

What is differential cost example?

Differential cost is the difference between the cost of two alternative decisions, or of a change in output levels. Example of change in output. A work center can produce 10,000 widgets for $29,000 or 15,000 widgets for $40,000. The differential cost of the additional 5,000 widgets is $11,000.

How do you find differential revenue?

How do you calculate differential value?

For the company to know if the new selling price is viable, it calculates the differential cost by deducting the cost of the current capacity from the cost of the proposed new capacity. The differential cost is then divided by the increased units of production to determine the minimum selling price.