A increase in cost of one alternative over the cost of another. In other words, it constitutes the change in cost due to change in ongoing business operations. Incremental cost is all about the extra or additional cost that would arise from changes in existing operations, for many reasons including expansion, improvement, etc.

Generally speaking, it is the cost added to the existing cost structure by producing/ or delivering one additional unit of a product or service. This cost reflects changes that impact an entity’s statement of income and the balance sheet a result of such an addition.

Over an extended period of time, incremental costs will impact the overall cost structure (operational cost) as it becomes an integral part of it.

Incremental cost is also known as a marginal cost.