Answer
Differential cost = the difference between two type of alternatives
Because of that, the differential cost can be seen as being either variable or fixed. When it comes to making a decision, the importance is in regard to determining the difference between the two alternatives which are evaluated. If in the case of the two alternatives the fixed costs are the same, they will not be taken into consideration. Because of that, what really matters is the difference between the cost and not strictly the fixed or variable cost.
Work Step by Step
Differential cost = in this case, variable costs are significant while fixed cost might or might not be included.
In general, the difference between the costs is the one that really matters. Fixed costs become important only when they are different.
