Marginal Costing in Cost Accounting

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Marginal Costing
 
Subject:  Cost Accounting
Class:      B Com VI Semester
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Marginal Costing
 
Marginal Costing is a specific technique of
cost analysis in which cost informations are
presented in such a manner so that it may
help the management in cost control and
various managerial decisions.
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Concept of Marginal Cost
 
According to ICMA London, “Marginal cost
is the amount at any given volume of output
by which aggregate cost are changed if the
volume of output is increased or decreased
by one unit.”
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Some Important Points
 
In this technique, total cost is divided into
fixed and variable components.
Fixed expenses remain constant in
aggregate amount and do not vary with the
increase or decrease in production upto a
particular level of output. On the other hand,
variable expenses increase or decrease in
proportion to increase or decrease in output
and remain constant per unit of output.
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Some Important Points
 
Fixed expenses lead to different costs per unit
at different levels of production. it means, fixed
cost decreases per unit with the increase in
production and increases per unit with the
decrease in production.
Marginal cost is used in two meanings.
According to first meaning marginal cost refers
to variable cost. Variable cost consists of direct
materials, direct labour, variable direct expenses
and all variable overheads.
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Some Important Points
 
Marginal Cost = Prime Cost + All Variable
   
     Overheads
Marginal Cost  =  Direct Material + Direct
   
     Labour + Direct Expenses
Marginal Cost =  Total Cost – All Fixed
   
    Overheads
Marginal Cost= Total Cost-(Fixed Works
Expenses + Fixed Office Expenses+ Fixed
Selling & Distribution Expenses)
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Basic Characteristics of Marginal Costing
 
It is a technique of Cost Analysis and Presentation which
helps management in taking various management decision.
The stocks of finished goods and work-in-progress are
valued at Marginal costs.
Fixed cost is treated as period cost, whereas variable cost is
regarded as a cost of product.
All elements of cost are classified into Fixed and Variable.
 Selling price is determined on the basis of marginal cost
plus contribution.
 In Marginal Costing, only variable costs are charged to
production cost.
Break-even Analysis is an integral part of Marginal
Costing.
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Marginal Costing is a cost analysis technique that helps management control costs and make informed decisions. It involves dividing total costs into fixed and variable components, with fixed costs remaining constant and variable costs changing per unit of output. In Marginal Costing, only variable costs are considered in production costs, and Break-even Analysis is an essential aspect. This method values finished goods and work-in-progress at marginal costs and distinguishes fixed costs as period costs and variable costs as product costs. Ultimately, it aids in determining selling prices based on marginal cost plus contribution.


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  1. Marginal Costing Subject: CostAccounting Class: B Com VI Semester

  2. Marginal Costing Marginal Costing is a specific technique of cost analysis in which cost informations are presented in such a manner so that it may help the management in cost control and various managerial decisions.

  3. Concept of Marginal Cost According to ICMA London, Marginal cost is the amount at any given volume of output by which aggregate cost are changed if the volume of output is increased or decreased by one unit.

  4. Some Important Points In this technique, total cost is divided into fixed and variable components. Fixed expenses remain aggregate amount and do not vary with the increase or decrease in production upto a particular level of output. On the other hand, variable expenses increase or decrease in proportion to increase or decrease in output and remain constant per unit of output. constant in

  5. Some Important Points Fixed expenses lead to different costs per unit at different levels of production. it means, fixed cost decreases per unit with the increase in production and increases per unit with the decrease in production. Marginal cost is used in two meanings. According to first meaning marginal cost refers to variable cost. Variable cost consists of direct materials, direct labour, variable direct expenses and all variable overheads.

  6. Some Important Points Marginal Cost = Prime Cost + All Variable Overheads Marginal Cost = Direct Material + Direct Labour + Direct Expenses Marginal Cost = Total Cost All Fixed Overheads Marginal Cost= Total Cost-(Fixed Works Expenses + Fixed Office Expenses+ Fixed Selling & Distribution Expenses)

  7. Basic Characteristics of Marginal Costing It is a technique of Cost Analysis and Presentation which helps management in taking various management decision. The stocks of finished goods and work-in-progress are valued at Marginal costs. Fixed cost is treated as period cost, whereas variable cost is regarded as a cost of product. All elements of cost are classified into Fixed and Variable. Selling price is determined on the basis of marginal cost plus contribution. In Marginal Costing, only variable costs are charged to production cost. Break-even Analysis is an integral part of Marginal Costing.

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