Chapter 7   Integral and Differential Cost Calculation

Chapter 7 up to and including Chapter 13 is Part 2 ‘COSTS and BUSINESS POLICY’ from ‘Business Economics VI Groundbreaking’. Costs in relation to the policy to be implemented.

Calculating with all costs (integral costs) versus calculation with only those costs that change if this or that is chosen. Which costs will be different and which costs will not be affected by what you choose or do not choose in a particular situation? That question mark should soon be gone. You must know it after Chapter 7; that there is: integral (AC) and differential (DC) cost calculation.

AC   Absorption Costing   (full costing, integral costs)   INDEED ALL COSTS

DC   Direct Costing   (differential, marginal costs)   NOT ALL COSTS

Neither approach is always correct.

When it comes to main questions in the long term, the AC approach is generally preferable. For questions such as ‘which location of operation?’ or ‘which production method?’ it is indeed advisable to map out all costs as much as possible.

When it comes to something that happens in a relatively short term, the DC approach is generally the best. Because it is most efficient. With the least effort, in the shortest time, still leading to the right decisions.

It is not wise to be a supporter, neither from DC nor from AC. Choose with common sense, if it can be DC several times and AC is for sure needed at another time. The choice for AC or DC is dependent on the problem definition at hand. In any case, either AC or DC is the better choice. This by implication means that the other one is irrelevant. The best approach must be chosen from case to case. Always one of the two is better; the other approach is therefore not relevant. Better, because it’s the shortest way to the solution (efficient) or because the correctly chosen way is the only one that is effective.

Do you want to know more? See Chapter 7 in ‘Business Economics VI Groundbreaking’.

This book harshly criticizes out-of-date Business Economics textbooks.

You are very poorly trained in business economics even at Business Schools that ignore ‘Business Economics VI Groundbreaking’.

A self-study book, hardly needing a teacher. Necessary also for many managers in companies to improve their own performance.

Can be ordered directly via this link

En Nederlandstalig