If marginal costs are relevant for specific situation or specific decision making scenario then marginal costs are relevant costs otherwise marginal costs can be irrelevant.
Generally variable costs are relevant costs but if due to any decision fixed costs are also going to affected then fixed costs are also relevant costs.
Marginal cost is the extra cost incurred in producing one unit of a product.If the marginal cost is more than average cost that means that costs are increasing and if it is less it means costs are decreasing.This way we find out how are business is progressing.
- The Marginal costing technique is appropriate for decision making as it highlights those costs (and revenues) which will change as a result of the decision under review being put into effect. - As fixed costs are mostly overheads, and, under marginal costing these are all treated as period costs and charged into the income statement therefore marginal costing avoids arbitrary allocation of overheads to units of output. - Reporting profit on a marginal costing basis will be more closely relates to changes in sales volume and are less affected by changes in inventory levels. - An understanding of the behavior of costs and the implications of contribution is vital for accountants and managers as the use of marginal costing for decision making is universal.
The increase or decrease in the total cost of a production run for making one additional unit of an item. It is computed in situations where the breakeven point has been reached: the fixed costs have already been absorbed by the already produced items and only the direct (variable) costs have to be accounted for. Marginal costs are variable costs consisting of labor and material costs, plus an estimated portion of fixed costs (such as administration overheads and selling expenses). In companies where average costs are fairly constant, marginal cost is usually equal to average cost. However, in industries that require heavy capital investment (automobile plants, airlines, mines) and have high average costs, it is comparatively very low. The concept of marginal cost is critically important in resource allocation because, for optimum results, management must concentrate its resources where the excess of marginal revenue over the marginal cost is maximum. Also called choice cost, differential cost, or incremental cost. Read more: http://www.businessdictionary.com/definition/marginal-cost.html#ixzz2Mdg26AC0
Marginal cost at each level of production includes any additional costs required to produce the next unit. If producing extra vehicles requires building a new factory, the marginal cost of those extra vehicles includes the cost of the new factory....BOSS
There are two measures of production costs: total costs and marginal costs. The relevant ratio depends on which of these is being minimised.
One is able to learn about marginal costs at several different places online, such as at the following websites: the Wikipedia Marginal Costs webpage, Marginal Cost, and Margins.
Profits will be maximized when marginal revenue is equal to marginal costs. This will only happen in cases where there are fixed costs.
Rational Decision making occurs when marginal benefits of an action exceed the marginal costs
equal to marginal revenue
equal to marginal revenue
The most profitable output level is when marginal costs equals marginal revenue. When marginal revenue is larger than marginal cost, that means that more product can be produced for more profit.
The optimal level of output is where marginal costs = marginal damages.
Marginal benefits and marginal costs
Where the marginal benefits equal marginal costs.
Generally variable costs are relevant costs but if due to any decision fixed costs are also going to affected then fixed costs are also relevant costs.
A company maximizes profits when marginal revenue equals marginal costs.