Incremental analysis is a decision-making technique in which we will be comparing two different alternatives and we will be considering the incremental cost associated with one alternative over the other and one of the most important considerations will be that we will not be considering any kind of sunk cost or the past cost. Incremental analysis is also known as marginal cost analysis or relevant cost analysis. Hypothetical example Suppose if I want to purchase a car for the rental business. I have to choose between a sedan or a Multi-utility vehicle. The sedan will have a seating capacity of 5 (including the driver) and a Multi-utility vehicle will have a seating capacity of 8 people (including the driver). So-net there is 3 capacity more in the multi-utility vehicle. Now when I want to rent this out I can see the incremental rent which I can generate by having a multi-utility vehicle compared to a sedan. The incremental rent which I get is the additional revenue due to higher seating capacity. There will be incremental cost also of running Sedan vs Multi-utility vehicle. Hence the incremental cost of running a Multi-utility vehicle compared to a sedan has to be deducted from the incremental revenue and the net incremental contribution has to be seen. This incremental contribution has to be evaluated for purchase of a multi-utility vehicle through NPV analysis and payback period Similarly, we can apply an incremental approach in other areas Purchase of vehicle vs public transport Travel by own vehicle vs Travel by rental cab

What are the steps in incremental analysis and how would they apply in your example?