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CMA Foundation · Fundamentals of Financial and Cost Accounting · Classification of Costs (CAS 1)

Sharma Plastics produces 2,000 units at a total cost of Rs 3,40,000. When production rises to 2,500 units, total cost becomes Rs 3,80,000. What is the marginal cost per unit for the additional 500 units?

The marginal cost per additional unit is Rs 80. Total cost rises by Rs 40,000 when output rises by 500 units, and dividing the change in cost by the change in output gives Rs 80, not the average cost.

  1. ARs 80Correct
  2. BRs 152
  3. CRs 170
  4. DRs 160

Explanation

Marginal cost here is the change in total cost divided by the change in units: (3,80,000 − 3,40,000) / 500 = 40,000 / 500 = Rs 80. Rs 152 is the average cost at 2,500 units and Rs 170 is the average cost at 2,000 units; neither measures the extra cost.

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