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What Is The Difference Between A Differential Cost And An Incremental Cost? |
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Answer» I USE the terms differential cost and incremental cost interchangeably. In other WORDS, I believe the terms mean the same thing: the difference in cost between two ALTERNATIVES. For example, if a company determined that the ANNUAL cost of operating at 80,000 machine hours was $4,000,000 while the annual cost of operating at 70,000 machine hours was $3,800,000, then the differential cost or incremental cost of the additional 10,000 machine hours was $200,000. I use the terms differential cost and incremental cost interchangeably. In other words, I believe the terms mean the same thing: the difference in cost between two alternatives. For example, if a company determined that the annual cost of operating at 80,000 machine hours was $4,000,000 while the annual cost of operating at 70,000 machine hours was $3,800,000, then the differential cost or incremental cost of the additional 10,000 machine hours was $200,000. |
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