Which statement about marginal cost is true?

Which statement about marginal cost is true?

• A. It equals total cost
• B. It excludes direct materials
• C. It equals sum of fixed costs
• D. It equals direct and variable costs

Answer: (D)

Marginal cost is the additional cost incurred to produce one more unit. It represents the costs that change with output, primarily variable costs such as direct materials, direct labor, and variable overhead. Since fixed costs do not vary with production in the short term, they do not enter into the marginal cost for producing an extra unit. So the statement that marginal cost equals direct and variable costs is true because it captures the costs that actually vary with output (the direct inputs and other variable costs). The other ideas don’t fit: total cost includes fixed costs and isn’t the incremental cost of one more unit; direct materials are part of the variable costs, not excluded; and fixed costs by themselves don’t describe the cost of producing an additional unit.

Marginal cost is the additional cost incurred to produce one more unit. It represents the costs that change with output, primarily variable costs such as direct materials, direct labor, and variable overhead. Since fixed costs do not vary with production in the short term, they do not enter into the marginal cost for producing an extra unit.

So the statement that marginal cost equals direct and variable costs is true because it captures the costs that actually vary with output (the direct inputs and other variable costs). The other ideas don’t fit: total cost includes fixed costs and isn’t the incremental cost of one more unit; direct materials are part of the variable costs, not excluded; and fixed costs by themselves don’t describe the cost of producing an additional unit.