Couple of questions about drywall patching.

In one section of wall I had to take a Sawsall to a galvanized pipe -
unfortunately it was snugged pretty tightly to the wall and consequently the
sawsall penetrated the wall. Normally that wouldn't be a big deal, slap on
some patch over the line cut by the sawsall and be done with it. However
the Sawsall took out a good portion of the drywall backing so the hole is
what is exposed, but surrounding the hole is mostly just drywall paper and
paint. Should I cut out around the hole and replace that section or patch
the hole and let the paint, paper, and remaining drywall take care of the
rest? If I had to hang picture there or something I would replace no
question, but that's not really on the docket for me.

Second question, is joint compound/mud perfectly acceptable to use as a
dent/gouge repair for finished drywall - or is patching compound better.