What is Marginal cost?

What is Marginal cost?

• A. Sum of direct and fixed costs
• B. Sum of direct materials and direct labour
• C. Sum of direct and variable (indirect) costs
• D. Sum of fixed production overheads

Answer: (C)

Marginal cost is the additional cost of producing one more unit. In the short run, fixed costs do not change with output, so they aren’t part of the increment. The extra unit adds the variable costs, including direct materials, direct labour, and any variable overhead (indirect variable costs). So the marginal cost equals the sum of direct costs and variable costs. That’s why the option describing direct and variable (indirect) costs is the best fit. The other options include fixed costs or omit parts of the variable costs, which is why they aren’t correct.

Marginal cost is the additional cost of producing one more unit. In the short run, fixed costs do not change with output, so they aren’t part of the increment. The extra unit adds the variable costs, including direct materials, direct labour, and any variable overhead (indirect variable costs). So the marginal cost equals the sum of direct costs and variable costs. That’s why the option describing direct and variable (indirect) costs is the best fit. The other options include fixed costs or omit parts of the variable costs, which is why they aren’t correct.