Formulae [1]
Marginal Cost Formula
\[MC_n=TC_n-TC_{n-1}\]
Where:
- MCn: Marginal cost of nth unit
- TCn: Total cost at n units
- TCn−1: Total cost at (n-1) units
Or, more generally:
\[MC=\frac{\Delta TC}{\Delta Q}\]
- ΔTC: Change in total cost
- ΔQ: Change in quantity of output (usually 1 unit)
Key Points
Key Points: Cost Concepts > Marginal Cost
- Marginal cost = extra cost for one extra unit.
- MC uses only variable costs (not fixed cost).
- MC curve is U-shaped in the short run.
- MC is key for decision making: output is optimal when Marginal Cost = Marginal Revenue.
- Sum of all MCs = Total Variable Cost (TVC).
Concepts [13]
- Introduction to Marginal Costing
- Advantages of Marginal Costing
- Disadvantages of Marginal Costing
- Application of Marginal Costing
- Marginal Cost (MC)
- Marginal Cost > Contribution
- Marginal Cost > Profit/Volume (P/V) Ratio
- Marginal Cost > Margin of Safety (Mos)
- Break-even Point
- Contribution Margin Technique
- Break-even Chart
- Profit Volume Graph
- Cost Volume Profit Analysis
