The increase in costs and revenues that occur as a result of the decision is called which cost?

The increase in costs and revenues that occur as a result of the decision is called which cost?

• A. Relevant cost
• B. Environmental internal failure costs
• C. Incremental cost
• D. Committed cost

Answer: (C)

Incremental cost is the extra cost that arises when you choose a particular option. In decision making, you look at how costs change with the action and how revenues change as a result, so the change in costs is the incremental cost. This concept helps you judge the financial impact of a choice by relating the additional costs to the additional revenues they bring. If the extra revenues exceed the extra costs, the option adds value. Fixed or committed costs that don’t change with the decision aren’t part of this comparison, and quality-related or external costs aren’t the focus of this specific analysis.

Incremental cost is the extra cost that arises when you choose a particular option. In decision making, you look at how costs change with the action and how revenues change as a result, so the change in costs is the incremental cost. This concept helps you judge the financial impact of a choice by relating the additional costs to the additional revenues they bring. If the extra revenues exceed the extra costs, the option adds value. Fixed or committed costs that don’t change with the decision aren’t part of this comparison, and quality-related or external costs aren’t the focus of this specific analysis.