Incremental Analysis

AAA

DEFINITION of 'Incremental Analysis'

A decision-making technique used in business to determine the true cost difference between alternatives. Incremental analysis ignores sunk costs and costs that are the same between the two alternatives to look only at the remaining costs. For this reason, it is also called the "relevant cost approach," "marginal analysis" or "differential analysis."

INVESTOPEDIA EXPLAINS 'Incremental Analysis'

If a company is considering replacing its old copy machine, using incremental analysis, the company would not look at the cost of the existing copy machine because it is a sunk cost (the cost of buying it cannot be reversed). They would look at things like the cost of toner cartridges for each machine, the cost of the electricity run each machine, and most importantly, the time saved by having employees use a more efficient model and perhaps the cost savings of being able to prepare documents in-house instead of outsourcing them.

RELATED TERMS
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the ...
  2. Depreciated Cost

    1. The value of an asset net of all accumulated depreciation ...
  3. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. ...
  4. Relevant Cost

    A managerial accounting term that is used to describe costs that ...
  5. Irrelevant Cost

    A managerial accounting term that represents a cost, either positive ...
  6. Valuation Analysis

    A form of fundamental analysis that looks to compare the valuation ...
Related Articles
  1. Active Trading

    An Introduction To Depreciation

  2. It is, therefore, crucial for investors who are analyzing stocks to understand how inventory is valued.
    Fundamental Analysis

    Inventory Valuation For Investors: FIFO ...

  3. Options & Futures

    Car Shopping: New Or Used?

  4. Economics

    How A Limited Government Affects A Country's ...

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center