2. MEANING & DEFINITION
Marginal costing is a technique of costing fully
oriented towards managerial decision making and
control. Marginal Costing being a technique can be
used in conjunction with any method of cost
ascertainment. It can be used in combination with
other techniques such as budgeting and standard
costing.
Marginal cost is the additional cost of producing an
additional unit of a product
3. oMarginal costing is helpful in determining the
profitability of products, departments, processes
and cost centers
oMarginal cost= prime cost + total variable
overheads
4. MARGINAL COSTING
IT IS A COSTING SYSTEM WHICH TREATS
ONLY THE VARIABLE MANUFACTURING
COSTS AS PRODUCT COSTS. THE FIXED
MANUFACTURING OVERHEADS ARE
REGARDED AS PERIOD COST
5. FEATURES OF MARGINAL COSTING
1) Control or decision making
2) Classification
3) Fixed cost
4) Variable cost
5) Contribution
6) Profitability
7) Ascertain profit
8) Cost-volume-profit relationship
6. ADVANTAGES
1. Simplicity
2. Stock valuation
3. Meaningful reporting
4. Effect of fixed costs
5. Profit planning
6. Cost control and cost reduction
7. Pricing Policy
8. Helpful to Management
7. LIMITATIONS
1. Classification of cost
2. Not suitable for external reporting
3. Lack of Long-term perspective
4. Under valuation of stock
5. Automation
6. Production aspect is ignored
7. Not applicable in all types of business
8. Misleading picture
9. Less scope for Long-term policy decision
8. DIFFERENCE BETWEEN MARGINAL AND
ABSORPTION COSTING
ABSORPTION COSTING MARGINAL COSTING
CHARGING OF COST
Fixed cost form part of total cost of
production and distribution.
VALUATION OF STOCK
Stock and work-in-progress are valued
ay both fixed and variable costs i.e,
total cost.
Variable cost alone forms
part of total cost of production
and sales whereas fixed costs
are charged against
contribution for determination
of profit.
Stocks are valued at variable
cost only.
9. ABSORPTION COSTING MARGINAL COSTING
VARIATION IN PROFITS
When there is no sales the entire stock
is carried forward and there is no trading
profit or loss.
PURPOSE
It is more suitable for long term decision
making and for pricing policy over long
term.
EMPHASIS
It lays emphasis on production.
If there is no sales the fixed overhead
will be treated as loss in the absence
of contribution. It is not carried forward
as a part of stock value.
It is more useful for short term
managerial desion making.
It lays emphasis on selling and pricing
aspects.
