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.
Fixed costs are considered irrelevant in profit maximization decisions because they do not change with the level of production or sales; they remain constant regardless of output. Profit maximization focuses on marginal costs and marginal revenues, which directly impact decision-making. Since fixed costs do not influence the marginal analysis, they do not affect the optimal output level. Thus, decisions should be based on variable costs and revenues that fluctuate with production levels.
- 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.
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 optimal level of output is where marginal costs = marginal damages.
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.
Where the marginal benefits equal marginal costs.
Marginal benefits and marginal costs
A company maximizes profits when marginal revenue equals marginal costs.
when marginal costs are below average cost at a given output, one candeduce that, if output increases dose average costs fall or marginal costs will fall