CMA Foundation · Fundamentals of Financial and Cost Accounting · Classification of Costs (CAS 1)
Kaveri Industries makes 1,000 units of a product at a total cost of Rs 5,00,000. When output rises to 1,001 units, the total cost becomes Rs 5,00,320. The additional Rs 320 represents which cost concept?
The extra Rs 320 is the marginal cost, because it is the increase in total cost from producing one more unit, from 1,000 to 1,001 units. Average cost would be Rs 500 per unit, which is a different measure.
- AMarginal costCorrect
- BAverage cost
- CSunk cost
- DOpportunity cost
Explanation
Marginal cost is the change in total cost caused by producing one additional unit. Here, 5,00,320 - 5,00,000 = Rs 320. The average cost would be 5,00,000/1,000 = Rs 500 per unit, which is not the increase in cost.
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