Incremental cost

It is defined as, “the additional costs of a change in the level or
nature of activity”. As such for all practical purposes there is no difference between
incremental cost and differential cost. However, from a conceptual point of view,
differential cost refers to both incremental as well as decremental cost. Incremental cost
and differential cost calculated from the same data will be the same. In practice,
therefore, generally no distinction is made between differential cost and incremental cost.
One aspect which is worthy to note is that incremental cost is not the same at all levels.
Incremental cost between 50% and 60% level of output may be different from that which is
arrived at between 80% and 90% level of output. Differential cost or incremental costanalysis deals with both short-term and long-term problems.