Incremental cost là gì

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What Is Incremental Cost?

Incremental cost is the total cost incurred due to an additional unit of hàng hóa being produced. Incremental cost is calculated by analyzing the additional expenses involved in the production process, such as raw materials, for one additional unit of production. Understanding incremental costs can help companies boost production efficiency & profitability.

Incremental cost is the amount of money it would cost a company khổng lồ make an additional unit of hàng hóa.Companies can use incremental cost analysis lớn help determine the profitability of their business segments.A company can chiến bại money if incremental cost exceeds incremental revenue.

Understanding Incremental Cost

Since incremental costs are the costs of manufacturing one more unit, the costs would not be incurred if production didn"t increase. Incremental costs are usually lower than a unit average cost lớn produce incremental costs. Incremental costs are always comprised of variable costs, which are the costs that fluctuate with production volumes. Incremental costs might include the following:

Raw materials such as inventoryUtilities, such as the additional electriđô thị needed lớn power the equipmentWagesor direct labor that"s only involved in productionShipping và packaging

In other words, incremental costs are solely dependent on production volume. Conversely, fixed costs, such as rent và overhead, are omitted from incremental cost analysis because these costs typically don"t change with production volumes. Also, fixed costs can be difficult lớn attribute khổng lồ any one business segment. Incremental costs are often referred lớn as marginal costs.

Benefits khổng lồ Incremental Cost Analysis

Understanding incremental costs can help a company improve sầu its efficiency và save sầu money. Incremental costs are also useful for deciding whether lớn manufacture a good or purchase it elsewhere. Understanding the additional costs of increasing production of a good is helpful when determining the retail price of the sản phẩm. Companies look to lớn analyze the incremental costs of production to maximize production levels & profitability. Only the relevant incremental costs that can be directly tied lớn the business segment are considered when evaluating the profitability of a business segment.

Analyzing production volumes và the incremental costs can help companies achieve sầu economies of scaleto optimize production. Economies of scale occurs when increasing production leads lớn lower costs since the costs are spread out over a larger number of goods being produced. In other words, the average cost per unit declines as production increases. The fixed costs don"t usually change when incremental costs are added, meaning the cost of the equipment doesn"t fluctuate with production volumes.

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Incremental costs are relevant in making short-term decisions or choosing between two alternatives, such as whether to accept a special order. If a reduced price is established for a special order, then it"s critical that the revenue received from the special order at least covers the incremental costs. Otherwise, the special order results in a net loss.

Incremental Cost vs. Incremental Revenue

Incremental costs help to lớn determine the profit maximization point for a company or when marginal costs equal marginal revenues. If a business is earning more incremental revenue (or marginal revenue) per sản phẩm than the incremental cost of manufacturing or buying that hàng hóa, the business earns a profit.

Alternatively, once incremental costs exceed incremental revenue for a unit, the company takes a loss for each tòa tháp produced. Therefore, knowing the incremental cost of additional units of production and comparing it to lớn the selling price of these goods assists in meeting profit goals.

Example of Incremental Cost

Let"s say, as an example, a company is considering increasing their production of goods but needs to lớn understand the incremental costs involved. Below are the current production levels as well as the added costs of the additional units.

10,000 units has a total cost of $300,000 or $30 per unit ($300,000 / $10,000)12,000 units has a total cost of $330,000 or $27.50 per unit ($330,000 / $12,000)

As a result, the total incremental cost lớn produce the additional 2,000 units is $30,000 or ($330,000 - $300,000).

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The reason there"s a lower incremental cost per unit is due khổng lồ certain costs, such as fixed costs remaining constant. Although a portion of fixed costs can increase as production increases, usually, the cost per unit declines since the company isn"t buying additional equipment or fixed costs to produce the added volume.