marginal costing
Marginal Costing
Introduction
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 is that cost which varies in accordance with the volume of output. To put 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 is formally defined as: “ The accounting system in which variable costs 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
Introduction
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 is that cost which varies in accordance with the volume of output. To put 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 is formally defined as: “ The accounting system in which variable costs 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