Differential and Incremental Cost:
- Differential cost is difference between the costs of two different production levels. It is a relative representation of costs for two different levels either increase or decrease in cost.
- Incremental cost, on the other hand, is the increase in the costs due change in the volume or process of production activities.
- Incremental costs are sometime compared with marginal cost but in reality there is a thin line difference between the two.
- Marginal cost is the change in the total cost due to production of one extra unit while incremental cost can be both for increase in one unit or in total volume.
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