Incremental cost
Incremental cost is the additional cost caused by choosing one option rather than the specified alternative. It may include variable spending, additional fixed resources and other changed consequences. Define the comparison clearly, because the same cost can be incremental against one option but unchanged against another. Relevant-cost analysis focuses on the future differences, not a mechanical classification of all variable costs as relevant and all fixed costs as irrelevant.
Worked example
Outsourcing costs $15,000; making internally adds materials $7,000, labour $4,000 and a new specific supervisor $2,000. Incremental internal cost is $13,000, before other differences.
Common mistake
A fixed cost can be incremental when the option requires an additional resource. Do not ignore it solely because it is fixed.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | PM | Direct | September 2026–June 2027 |