Marginal Costing

Introduction: Marginal Costing is a technique which also divides costs into two categories, but of somewhat different nature. In this case costs are identified as being either fixed or variable, relative to the quantity of output:

Total Cost    =    Variable Costs   +   Fixed Costs

 Marginal Costing – Definition:

Marginal costing distinguishes between fixed and variable costs as conventionally classified. The marginal cost of a product is its variable cost. This is normally taken to be; direct labour, direct material, direct expenses and the variable part of overheads. Marginal costing is formally defined as:

       “ The accounting system in which variable cots are charged to cost units and fixed costs of period are written off in full against the aggregate contribution. Its special value is in recognizing cost behaviour and hence assisting in decision-making. “

The term contribution mentioned in the definition is the term given to the difference between Sales and Marginal Cost. Thus

Marginal Cost   =   Variable Cost    =    Direct Labour

                                                                                       +

                                                                          Direct Material

                                                                                       +

                                                                         Direct Expenses

                                                                                       +

                                                                      Variable Overheads

Contribution    =    Sales   -    Marginal Cost

The term marginal cost sometimes refers to the marginal cost per unit and sometimes to the total marginal costs of a department or batch or operation. The meaning is usually clear from the context.

Ø      Marginal costing involves ascertaining marginal costs. Since marginal costs are direct cost, this costing technique is also known as direct costing;

Ø      In marginal costing, fixed costs are never charged to production. They are treated as period charge and is written off to the profit and loss account in the period incurred;

Ø      Once marginal cost is ascertained contribution can be computed. Contribution is the excess of revenue over marginal costs.

Ø      The marginal cost statement is the basic document/format to capture the marginal costs.

Note:

Alternative names for marginal costing are the contribution approach and direct costing.

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Comments 29 comments

punam 7 years ago

i think dis one is good to understand..


ankur khanna 6 years ago

i can't understand this.pls help


Hassnain 5 years ago

very nice knowledge


Kiran rawat 5 years ago

Thanx, it is nice.


narendra rawat icwa 5 years ago

nice


stella 4 years ago

very nice, thanks


kjiwa tvwat 4 years ago

Supa Nice init


parthi j 4 years ago

super...very eary to understand


sachin 4 years ago

Thanx!!!!!!


burhanuddin 4 years ago

its cooolll mahn, straight to d point


burhanuddin 4 years ago

its cooolll mahn, straight to d point


Akram_icmab 4 years ago

Excellent presentation


mama@gac 4 years ago

interesting


abel Dpaa 4 years ago

its uesfuly to us tnk


moneymbe 4 years ago

dis z e best


nidatun nisa 4 years ago

hmmm nt dt mch...i was xpctin smthn elz!


BIMAL BHUSA JENA 4 years ago

VERY NICE FOR ME


usman virk 3 years ago

amazing


ali raza 3 years ago

nice information


thescientist2012 profile image

thescientist2012 3 years ago from Nairobi, Kenya

Yeah, very helpful information, i did commerce and accounting back in my high school and i now understand what marginal cost is. thank you.


thescientist2012 profile image

thescientist2012 3 years ago from Nairobi, Kenya

Yeah, very helpful information, i did commerce and accounting back in my high school and i now understand what marginal cost is. thank you.


bhumi bakshi 3 years ago

i think very good information for me nd understand me very wll.


shiba 3 years ago

thankzzzz....


tawanda 3 years ago

good but difficult to understand for beginners


dorothy 2 years ago

just what i wanted. thanx


fellylagat 2 years ago

this uderstood to be a student


manish 2 years ago

nature of marginal costing


Tytylayor 2 years ago

Tz simplifed so it help understand the basis


neha 2 years ago

type of marginalcosting

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