Incremental Cost

A company’s incremental cost is the additional cost specifically associated with taking on a new project or making other operational changes to the business, such as expansion of existing production capacity or adding staff. The incremental cost is the cost differential from making the decision to add to or alter production capacity. Calculating incremental costs and the marginal benefits from taking them on can impact management decision-making around pricing; for example, or can dissuade management from making changes at all if the incremental costs outweigh the incremental benefits.