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How To Calculate Marginal Cost
You can use this useful marginal cost calculator to compute the cost incurred when producing additional units of a given product.
What is Marginal Cost?Marginal cost is the additional cost of producing further units of a product or service. You can compute marginal cost by dividing the total expenses incurred when producing additional units by the variation in the number of products manufactured.
The variable costs typically involved in the calculation are materials and labor in combination with any rise in fixed costs (where applicable); for instance, inventory expenses, distribution costs, administration, etc.
Marginal Cost Formula and ExampleThe formula that is used to calculate the marginal cost is as follows:
Marginal Cost = Change in Costs / Change in Quantity
Example: Let's say you run a company that sells hats. Each month, you manufacture 100,000 hats at the cost of $10,000. You are considering manufacturing an additional 50,000 but would first like to determine the marginal cost of doing so. If 150,000 hats cost $15,000, you can input this information into the marginal cost formula as follows:
Marginal Cost = ($15,000 - $10,000)/(150,000 - 100,000) = $5,000/50,000 = $0.10
As such, hat 150,000 would cost you $0.10 to produce.
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