{"id":153589,"date":"2022-05-09T02:00:14","date_gmt":"2022-05-08T20:30:14","guid":{"rendered":"https:\/\/cbselibrary.com\/?p=153589"},"modified":"2022-05-11T10:53:24","modified_gmt":"2022-05-11T05:23:24","slug":"advantages-and-disadvantages-of-marginal-cost","status":"publish","type":"post","link":"https:\/\/cbselibrary.com\/advantages-and-disadvantages-of-marginal-cost\/","title":{"rendered":"Advantages And Disadvantages Of Marginal Cost | What is Marginal Costing?, Pros and Cons, Formula And Characteristics"},"content":{"rendered":"

Advantages And Disadvantages of Marginal Cost:<\/strong> Marginal cost refers to the change in the total cost due to the increase or decrease in the volume of output by one unit. Here a unit can be a single unit or a group of units or a process too. Marginal cost includes only variable cost because fixed cost remains same due to an increase or decrease in production. Only variable cost tends to change hence, the marginal cost is also called aggregate variable cost or prime cost plus variable overheads. Marginal cost refers to such a technique of cost accounting which explains about the changes in cost or profits due to changes in the volume of output. Under it only variable costs are treated as the cost of production. Since the indirect and fixed costs are not taken into consideration therefore the marginal cost is the technique of recording the variable cost due to the changes in production.<\/p>\n

Students can also find more\u00a0Advantages and Disadvantages<\/strong><\/a>\u00a0articles on events, persons, sports, technology, and many more.<\/p>\n

What is a Marginal Cost? What are the Advantages and Disadvantages of Marginal Cost?<\/h2>\n

Marginal cost refers to the change in the total cost due to the increase or decrease in the volume of output by one unit. There are several characteristics of marginal cost-<\/p>\n

    \n
  1. Techniques of cost analysis:<\/strong> marginal cost is not the traditional method of costing. Rather it is a technique that deals with the effect of change in cost, volume, price etc.<\/li>\n
  2. <\/b>Division of costs: <\/b>all the elements of the cost production, which is production, selling, distribution, are divided into variable and fixed costs.<\/li>\n
  3. Periodic cost and product cost:<\/strong> marginal cost clarifies the difference between periodic cost and product cost. Fixed cost is termed as period cost as it is related to a specific period of time. Variable cost or marginal cost is termed as the product cost.<\/li>\n
  4. Calculations of profits:<\/strong> here, the profits can be determined in a proper manner. Under it, contribution is calculated by deducting the marginal cost from total sales and net profit is ascertained by deducting the fixed cost from the contribution.<\/li>\n<\/ol>\n

    Calculating Marginal Cost<\/h3>\n

    Calculating marginal cost helps the business determine the point at which increasing the number of goods produced will increase average cost. Costs can add up if the company needs to add equipment, move to a larger facility, or struggle to find a supplier who provides enough materials. Formula to calculate the marginal cost follows as-<\/p>\n

    Marginal cost=(change in cost) \/(change in quantity)\u00a0 MC=<\/b>\u0394C\u0394Q<\/p>\n

    MC= Marginal Cost<\/p>\n

    {\u0394C}=change in cost<\/p>\n

    {\u0394Q}=change in quantity<\/p>\n

    When charted on a graph, marginal cost follows a U shape. Unless the fixed cost is covered, the cost starts getting higher. It stays at that low point for a period, and then begins to creep in as the increased production requires spending money for more employees, equipment, etc. Understanding the marginal cost of a product helps a company to assess its profitability and make informed decisions related to the product, including pricing.<\/p>\n