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. An Introduction To Depreciation
    Active Trading

    An Introduction To Depreciation

  2. Inventory Valuation For Investors: FIFO ...
    Fundamental Analysis

    Inventory Valuation For Investors: FIFO ...

  3. Car Shopping: New Or Used?
    Options & Futures

    Car Shopping: New Or Used?

  4. How Does Goodwill Affect Financial Statements?
    Investing Basics

    How Does Goodwill Affect Financial Statements?

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center