Marginal costing

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sandeep kr singh

sandeep kr singh (Querist)
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18 January 2015 can i have view regarding marginal costing...

CMA MALHAR BEHERA

CMA MALHAR BEHERA (Expert)
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19 January 2015 Marginal Costing is a technique which 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 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 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.
(i)Marginal costing involves ascertaining marginal costs. Since marginal costs are direct cost, this costing technique is also known as direct costing;
(ii)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;
(iii)Once marginal cost is ascertained contribution can be computed. Contribution is the excess of revenue over marginal costs.

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