Marginal Costing

Marginal cost is the change in the total cost when the quantity produced is incremented by one. That is, it is the cost of producing one more unit of a good. For example, let us suppose:

Variable cost per unit     = Rs 25

Fixed cost                 = Rs 1,00,000

Cost of 10,000 units       = 25 × 10,000 = Rs 2,50,000

Total Cost of 10,000 units = Fixed Cost + Variable Cost

= 1,00,000 + 2,50,000

= Rs 3,50,000

Total cost of 10,001 units = 1,00,000 + 2,50,025 = Rs 3,50,025

Marginal Cost = 3,50,025 – 3,50,000

= Rs 25

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