PDSnet Glossary

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Definition

This is the cost of producing one additional unit of a product. This is a variable cost which excludes the fixed overheads involved in production and looks at the materials cost of the additional unit of production and the cost of production. The benefit of knowing the marginal cost of a product is that enables cost accountants to establish the contribution which that product makes to overheads and profit. This understanding allows management to focus on the most profitable areas of the business.

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