Marginal cost comprises only variable production costs

Steps:

• Define marginal cost as the additional cost of producing one more unit.
• Identify variable costs that change with output: direct labour, direct materials, and variable production overheads.
• Exclude fixed costs, which remain constant regardless of output level.
• Match components to option C, which specifies these variables only.

Why C is correct:

• Marginal cost equals the change in total cost from one extra unit, per economic definition, capturing only variable elements like labour, materials, and overheads.

Why the others are wrong:

• A includes fixed production costs, which do not vary with output and thus are irrelevant to marginal cost.
• B omits "only," implying possible inclusion of non-variable costs, unlike C's precise exclusion.
• D excludes variable production overheads, understating the full variable cost impact.

Final answer: C