Free Guide to
Bookkeeping Concepts

Accounting Bookkeeping Concepts PDF Cover

Receive our free 18-page Guide to Bookkeeping Concepts (PDF) when you subscribe to our free newsletter.

You are already subscribed. This offer is not available to existing subscribers.
Step 2: Please check your email and click the confirmation link.


What is the difference between a differential cost and an incremental cost?

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.

The term marginal cost refers to the cost of operating for one additional machine hour.