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Edlintics

Differential cost

Differential cost is the change in total cost caused by choosing one decision alternative over another; it is also called incremental cost.

Also known asincremental cost

ByHoang TruongUpdated

FrameworkRelevant costing

See it move

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A two-step waterfall chart compares the make-in-house option at a total cost of €28,000 with the buy-from-supplier option. The differential saving from outsourcing is €6,000, bringing the buy alternative to €22,000; only this cost difference between the two options is relevant to the decision — costs common to both alternatives are irrelevant and should be excluded from the analysis.

Where it fits
SubjectCost AccountingCoreTopicRelevant Costs & Decision-MakingCore

The formula

LaTeX
Differential Cost=Total Cost of Option A−Total Cost of Option B\text{Differential Cost} = \text{Total Cost of Option A} - \text{Total Cost of Option B}

Variables

Change in total cost between two decision alternatives (€)