Distinguish between Marginal cost and fixed cost

Marginal Cost:

1. Definition: Marginal Cost is the additional cost incurred by producing one more unit of a product or service. It includes variable costs like direct materials, direct labor, and variable overhead
2. Behavior: Marginal Cost varies with changes in production levels. It remains constant on a per-unit basis in the short term but can change in the long term as variable costs fluctuate.
3. Use: Marginal Cost is used in decision-making, particularly in determining the optimal level of production or whether to accept special orders.

(d) Fixed Cost:

1. Definition: Fixed Cost is the cost that remains constant within a certain production or activity range, regardless of the level of production or activity. It includes costs like rent, salaries, and depreciation.
2. Behavior: Fixed Costs do not change with changes in production levels in the short term. They remain constant over a relevant range of production.
3. Use: Fixed Costs are important in budgeting, pricing decisions, and break-even analysis. They are considered when assessing the impact of different production levels on profitability.

In summary, these distinctions highlight the differences between various concepts and techniques used in accounting, pricing, cost analysis, and decision-making within organizations. Understanding these differences is crucial for making informed financial and managerial decisions.

Subcribe on Youtube - IGNOU SERVICE

For PDF copy of Solved Assignment

WhatsApp Us - 9113311883(Paid)