The opportunity cost is the value of a benefit sacrificed in favour of an alternative course of action. It is the maximum amount that could be obtained at any given point of time if a resource was sold or put to the most valuable alternative use that would be practicable. The opportunity cost of a good or service is measured in terms of revenue which could have been earned by employing that good or service in some other alternative uses. Opportunity cost can be defined as the revenue forgone by not making the best alternative use. Opportunity cost is the prospective change in cost following the adoption of an alternative machine process, raw materials etc. It is the cost of opportunity lost by diversion of an input factor from use to another.
The Incremental cost is the extra cost of taking one course of action rather than another. It is also called as different cost. The incremental cost is the additional cost due to a change in the level of nature of business activity. The change may take several forms e.g., changing the channel of distribution, adding a new machine, replacing a machine by a better machine, execution of export order etc. Incremental costs will be different in case of different alternatives. Hence, incremental costs are relevant to the management in the analysis for decision making.