INCREMENTAL COST Meaning and
Definition
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Incremental cost refers to the additional expenses or expenditures that are incurred due to the production of an additional unit of a certain product, a change in an existing project, or the implementation of a new project. It is a financial concept that helps businesses in assessing the impact of their decisions and actions on their overall costs.
Incremental costs are often compared with the concept of sunk costs, which are expenses that have already been incurred and cannot be recovered. Unlike sunk costs, incremental costs are variable and can be controlled or influenced by a company's management.
These costs are typically analyzed in relation to revenues or benefits generated by the production of an additional unit. By evaluating the incremental costs, businesses can determine whether the additional unit or project will be profitable or feasible. This analysis aids in decision-making, allowing organizations to assess the costs and benefits associated with potential investments or changes in their operations.
The incremental cost concept is essential for budgeting, pricing strategies, and evaluating the profitability of various projects and endeavors. It assists businesses in understanding the financial implications and trade-offs involved in their decisions, enabling better financial planning and resource allocation. Incremental costs play a significant role in managerial accounting, helping managers make informed choices and optimize their performance.
Common Misspellings for INCREMENTAL COST
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Etymology of INCREMENTAL COST
The word "incremental" is derived from the Latin word "incrementum", which means "increase" or "growth". It is formed from the verb "increscere", meaning "to grow" or "to increase".
The word "cost" comes from the Latin word "costa", which originally referred to "rib" or "side". Over time, the meaning shifted to include the expense or price of something.
Therefore, the etymology of the term "incremental cost" can be understood as the "increasing expense" or "growing price" of something, particularly when comparing it to a previous or base cost.
