Content

• Steps
• Method 1 of 3: Getting Started
• Method 2 of 3: Calculate the total cost
• Method 3 of 3: Marginal Cost. Calculation formula
• What do you need

Marginal cost is a production and economic quantity that characterizes the cost of producing additional products. To calculate marginal costs, you need to know several production quantities, such as fixed costs and variable costs. This article will show you how to calculate production costs using formulas.

Steps

Method 1 of 3: Getting Started

1. 1 Find or create a table containing production costs and production quantities. You must include the following values ​​in the table:
   • The number of products. The first column in your table is the total number of products produced. The data can increase by 1, for example: 1,2,3,4, etc., or it can increase in large increments, such as 1000, 2000, 3000, etc.
   • Fixed costs and variable costs. There are certain costs in the production process, such as rent, which are fixed. Other costs, such as the cost of materials, are variable (depending on the quantity). Make columns for each cost element next to the product quantity and enter the values.
2. 2 Get a pen, paper, and calculator. You can also do the calculations in a spreadsheet, but the best way to understand the marginal cost calculation is to write the formula down on paper.

Method 2 of 3: Calculate the total cost

1. 1 To the right of the variable and fixed cost columns, make another column called Total Cost.
2. 2 Add the fixed costs and variable costs for each data row.
3. 3 Calculate the total cost for each production quantity.
   • If you are using a spreadsheet, you can insert a formula in the total cost column that adds the fixed and variable costs on each row.

Method 3 of 3: Marginal Cost. Calculation formula

1. 1 Write down the formula "Marginal Cost = Change in Total Cost / Change in Quantity".
2. 2 Make a column to the right of the total cost called Marginal Cost. The first cell in the column will remain blank because you cannot find the marginal cost without changing the quantity.
3. 3 Find the change in total costs by subtracting the total costs on line 3 from the total costs on line 2: $ 40 minus $ 30.
4. 4 Find the change in the number of products by subtracting the number of products in line 3 from the number of products in line 2. For example, 2 minus 1.
5. 5 Plug in the data into the formula. For example, marginal cost = $ 10/1. In this case, the marginal cost is $ 10.
6. 6 Record the calculated marginal cost in the second cell of the appropriate column. Continue calculations for the remaining data.

What do you need

• Calculator
• Production cost table
• Pencil pen
• Paper
• Formula for calculating marginal costs
• Spreadsheet program (optional)