Overview
The marginal cost of production is the cost required to produce an additional unit of product or service. It is a commonly calculated figure to derive economically optimal decisions for a company.

### Marginal Cost Formula

The formula for calculating marginal cost is: Marginal Cost = Change in Cost / Change in Quantity If a company's total cost of production is calculated as TC = Fixed Cost + (Quantity x Variable Cost), then its marginal cost would simply be equal to its variable costs: MC = dTC / dQ = VC Where: TC = Total cost FC = Fixed cost Q = Quantity VC = Variable cost MC = Marginal cost   However in many cases, a one unit increase/decrease in production might not result in a proportional increase/decrease in costs. This is due to different types of cost behaviors such as unit costs (variable cost), batch costs (step-fixed cost), product cost (fixed cost), etc.

### Types of Marginal Costs

Due to the different types of cost behaviors, the marginal costs might not always vary directly proportionally with the number of units. Below is a list of types of marginal costs:

#### 1. Unit Costs

Unit cost is the traditional type of variable costs where one unit increase in production causes a proportional increase in costs.

#### 2. Batch Costs

Batch costs usually vary by the number of batches for a given number of units produced.

#### 3. Product Costs

Product costs are directly related to a particular item on a product portfolio. For example, the cost to design a product.

#### 4. Customer Costs

Customer costs relate to the number of customers which the company provided service to.

#### 5. Organization Sustaining Costs

Organizational sustaining costs are incurred as a result of operating activities of a business.

### More Useful Resources

Read CFI's guide on marginal cost of production to better understand the concept and application. CFI Marketplace also has a wide collection of accounting templates available for download and use in your daily financial analysis and modeling!
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