Let's start by talking about costs and benefits that are relevant to consider when making a decision. Relevant costs and benefits are incremental costs and benefits that an organization will incur or generate by selecting a particular course of action. When comparing two alternative courses of action, relevant costs and benefits are those costs and benefits that differ between the two alternatives. Think about it this way. If you are considering two alternatives, and those alternatives cost you a different amount of money, that difference is relevant to the decision you're making. But if those alternatives cost you exactly the same amount of money, but give you different benefits, you will make your decision based on the difference in benefits. The costs, because they're the same under each alternative, will not affect your decision, so they are not relevant to the decision. Relevant costs are sometimes called incremental or differential costs. They might be called incremental because a decision might yield additional, or incremental, costs or additional, or incremental, revenues when compared to an alternative. And they might be called differential because cost or benefits might differ between alternatives. Here's a quick example. Suppose you need to buy some orange juice and there are two supermarkets from which you can purchase the juice and each supermarket is equally accessible. At one supermarket a gallon of orange juice costs $2.00, and at the second supermarket that same brand cost $2.25. Because the cost of the orange juice differs between these two alternatives, it is relevant to your decision about where to go to purchase, and you will choose the supermarket that charges $2.00. Now suppose you go to that supermarket to purchase the orange juice and you discover that you could purchase the gallon of orange juice for $2 or alternatively, you can purchase the same brand of orange juice but in a larger size for exactly the same price, $2.00, because of a promotion the store is running. The cost of the orange juice is not relevant to your decision about which of these two juices you buy, because the cost is exactly the same between the two alternatives, $2.00. However, the benefits differ between these two alternatives. The larger size offers a greater benefit, so the benefits become relevant to this purchase decision. But, your decision will be unaffected by the cost because the cost is the same between the alternatives. Well, this is what we mean by relevance of cost and benefits, those that differ between two alternatives.