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Marginal cost represents the increase or decrease in total cost which occurs with a small change in output say, a unit of output. In Cost Accounting variable costs represent marginal cost.
Differential cost is the change (increase or decrease) in the total cost (variable as well as fixed) due to change in the level of activity, technology or production process or method of production.
In other words, it can be defined as the cost of one unit of product or service which would be avoided if that unit was not produced or provided.
The main point which distinguishes marginal cost and differential as that change in fixed cost when volume of production increases or decreases by a unit of production. In the case of differential cost variable as well as fixed cost. i.e. both costs change due to change in the level of activity, whereas under marginal costing only variable cost changes due to change in the level of activity.
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