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فيديو شرح Differential revenues and costs. Example. Cost Accounting Course. CPA Exam BAR ضمن كورس محاسبة التكاليف شرح قناة Farhat Lectures. The # 1 CPA & Accounting Courses، الفديو رقم 30 مجانى معتمد اونلاين
What are differential revenues and costs in cost accounting? This lecture shows CPA (BAR) and CMA exam candidates how to use differential analysis — also called incremental or relevant analysis — to compare the revenues and costs between alternative courses of action and make sound business decisions. Professor Farhat works a full example (whether a university should close a degree program), highlighting relevant vs. irrelevant costs. Ideal for accounting and business students studying managerial and cost accounting.
Try it free at farhatlectures.com — interactive exercises, lectures, simulations, cases, multiple choice, and AI tools for CPA, CMA, EA and students.
Video Timeline & Key Concepts:
0:00 — Introduction: differential (incremental/relevant) analysis
1:38 — Case Study: whether a university should close a BBA program showing a reported loss
2:26 — Irrelevant Costs: allocated administration costs that stay the same either way
2:35 — Relevant (Differential) Costs: faculty salaries, operating costs, maintenance, and advertising that would be saved
5:39 — Decision Recommendation: why the program should not be closed once irrelevant costs are ignored
Frequently Asked Questions:
What are differential (relevant) revenues and costs?
Differential revenues and costs are the amounts that differ between alternative courses of action. Only these amounts are relevant to a decision, because they are the ones that actually change depending on which option is chosen.
What is the difference between relevant and irrelevant costs?
Relevant costs change depending on the decision, so they belong in the analysis. Irrelevant costs — such as allocated administrative overhead — stay the same regardless of the choice and should be excluded from the differential analysis.
Why are allocated costs often ignored in a drop-or-keep decision?
Allocated costs are typically fixed common costs that do not disappear when a segment is dropped; they simply get reallocated to other departments. Because they do not change with the decision, they are irrelevant and are excluded.
Why might a program with a reported loss still be worth keeping?
A reported loss can be driven by allocated costs that would not go away if the program closed. When you focus only on the revenues and costs that actually change, the program may still generate a positive contribution, making it worth keeping.
How is differential analysis tested on the CPA and CMA exams?
Exams present drop-or-keep, make-or-buy, special-order, and similar decisions where you must separate relevant from irrelevant amounts and choose the alternative that maximizes contribution or profit.
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