Which of the following statement is/are correct?Statement-1: Marginal cost and differential cost do not convey the same meaningin all the circumstances.Statement-2: Differential cost increases or decreases due to change in fixed cost.a)Only 1b)Only 2c)Both (1) and (2)d)Neither (1) nor (2)Correct answer is option 'C'. Can you explain this answer?

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Which of the following statement is/are correct?

Statement-1: Marginal cost and differential cost do not convey the same meaning in all the circumstances.

Statement-2: Differential cost increases or decreases due to change in fixed cost.

a)
Only 1
b)
Only 2
c)
Both (1) and (2)
d)
Neither (1) nor (2)

Correct answer is option 'C'. Can you explain this answer?

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Which of the following statement is/are correct?Statement-1: Marginal ...

Both (1) and (2) statements are correct.
Marginal cost represents the increase or decrease in total cost which occurs with a small change in output say, a unit of output. In Cost, Accounting variable costs represent marginal cost.
Differential cost is the change (increase or decrease) in the total cost (variable as well as fixed) due to change in the level of activity, technology or production process or method of production.
In other words, it can be defined as the cost of one unit of product or service which would be avoided if that unit was not produced or provided.
The main point which distinguishes marginal cost and differential as that change in fixed cost when the volume of production increases or decreases by a unit of production.
In the case of differential cost variable as well as a fixed cost. i.e. both costs change due to change in the level of activity, whereas under marginal costing only variable cost changes due to change in the level of activity.

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Which of the following statement is/are correct?Statement-1: Marginal cost and differential cost do not convey the same meaningin all the circumstances.Statement-2: Differential cost increases or decreases due to change in fixed cost.a)Only 1b)Only 2c)Both (1) and (2)d)Neither (1) nor (2)Correct answer is option 'C'. Can you explain this answer?

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