Management and Cost Accounting - Unit 4th
Marginal Costing 1. Meaning of Marginal Costing Marginal costing is a technique of cost accounting in which only variable costs are charged to the cost of production, while fixed costs are treated as period costs and are charged fully to the Profit and Loss Account. In simple words, marginal costing helps a business understand how profit changes when the number of units produced or sold changes. Definition: Marginal costing is the ascertainment of marginal cost and the effect on profit of changes in volume or type of output by differentiating between fixed costs and variable costs. 2. Meaning of Marginal Cost Marginal cost refers to the additional cost incurred by producing one extra unit of a product. Formula: M C = Change in Total Cost Change in Output M C = Change in Output Change in Total Cost Example: If the total cost of producing 100 units is ₹10,000 an...