ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Analysis of Marginal Costing

Updated on April 2, 2013


The Cost of a product of comprises of materials, labour, and over heads. On the basis of variability they can be broadly classified as fixed and variable costs. Fixed costs are those costs which remain constant at all levels of production within a given period of time. In other words, a cost that does not change in total but become. progressively smaller per unit when the volume of production increases is known as fixed cost. it is also called period cost eg. Rent, Salary, Insurance charges etc. On the other hand variable cost are those cost which very in accordance with the volume of output. To part it in another way. variable costs are uniform per unit. but their total fluctuates in direct position to the total of the related activity or volume

Marginal Costing- Definition

Marginal Cost may be defined as : the amount of any given volume of output by which aggregate costs are changes if the volume of output is increased by one unit"

Marginal Costing distinguishes between fixed costs variable costs. The marginal Cost of product is its variable cost. It Includes direct materials. direct labour, direct expenses and the variable part of over heads. The term marginal costing has been defined as The ascertainment of marginal cost and the effect of profit or changes in volume or type of output by differentiating between fixed costs and variable costs. "In the technique of costing only variable cost and charges to cost units and fixed costs are to be written of against contribution for that period contribution is nothing but the excess of sale price over marginal cost.

Assumption of Marginal Costing

The Marginal Costing technique is based on the following assumptions.:-

1. All elements of costs can be divided in to two parts viz.variable and fixed

2. Variable cost remain constant per unit and fluctuates directly in proportion to change in the volume of out put.

3. Fixed Cost remain constant at all levels of production. the share of fixed cost per unit output vary according to the volume of production.

4. The selling price per unit remains unchanged at all levels of activity

5. The volume o f output is the only factor which influences the cost.

Advantages of Marginal Costing

The following are some of the advantages of marginal costing:-

1. Marginal costing technique is very simple to operate and easy to understand.

2. it avoids the problem of arbitrary apportionment of fixed costs.

3. it helps effective cost control by separating costs into fixed and variable

4. Marginal costing techniques helps the concern in taking vital managerial decision such as accepting foreign orders at low price, profitable products mix-change in market, to make or buy etc.

5. fixed costs are charges to current years profit. This prevents the practise of carrying over a part of fixed costs to the following year through the valuation of closing stock.

6. it yields good results when used along with standard costing.

7. it shows clearly the inter-relationship between cost. volume and profit there by help the management in profit planning.

8. it has unique approach in reporting cost data to the management to focus its attention towards more important areas.

Limitations of Marginal Costing

Despite the advantages, mentioned above the technique of marginal costing suffers from the following limitations:-

1. The technique of marginal costing in based on a number of assumption which are unrealistic.

2. It is very difficult to categorise all costs into fixes and variable components.

3. variable overheads are estimated which may result in over or under recovery of overheads.

4. The availability of better techniques such as budgetory control and standard costing reduce the importance of marginal costing.

5. The technique is not suitable to concerns where the proportion of fixed costs.

6. Since stock is valued at marginal cost. in case of loss by fire.full loss cannot be recovered from the insurance company.


    0 of 8192 characters used
    Post Comment

    • profile image


      3 years ago

      its very useful knowledge to us.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)