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The marginal cost of an item is its variable cost. The marginal production cost of an item is the sum of its direct materials cost, direct labour cost, direct expenses cost (if any) and variable production overhead cost. So as the volume of production and sales increases total variable costs rise proportionately.
Fixed costs, in contrast are cost that remain unchanged in a time period, regardless of the volume of production and sale.
Marginal production cost is the part of the cost of one unit of production service which would be avoided if that unit were not produced, or which would increase if one extra unit were produced.
From this we can develop the following definition of marginal costing as used in management accounting:
Marginal costing is the accounting system in which variable costs are charged to cost units and fixed costs of the period are written off in full against the aggregate contribution.
Note that variable costs are those which change as output changes - these are treated under marginal costing as costs of the product. Fixed costs, in this system, are treated as costs of the period.
Marginal costing is also the principal costing technique used in decision making. The key reason for this is that the marginal costing approach allows management's attention to be focused on the changes which result from the decision under consideration.
Marginal cost concept is used in Marginal costing .
In order to understand the marginal costing technique, it is essential to understand the meaning of marginal cost.
Marginal cost means the cost of the marginal or last unit produced. It is also defined as the cost of one more or one less unit produced besides existing level of production. In this connection, a unit may mean a single commodity, a dozen, a gross or any other measure of goods. For example, if a manufacturing firm produces X unit at a cost of $300 and X+1 units at a cost of $320, the cost of an additional unit will be $20 which is marginal cost.
Marginal costing may be defined as the technique of presenting cost data wherein variable costs and fixed costs are shown separately for managerial decision-making. It should be clearly understood that marginal costing is not a method of costing like process costing or job costing. Rather it is simply a method or technique of the analysis of cost information for the guidance of management which tries to find out an effect on profit due to changes in the volume of output.
" In UK, marginal costing is a popular phrase whereas in US, it is known as direct costing and is used in place of marginal costing."
Marginal Costing is a technique which also divides costs into two categories, but of somewhat different nature & Marginal costs are defined as the change in total costs resulting from a one unit change in output.
Marginal cost: is the change in the total cost due to change in the quantity produced by one unit, ie they are the cost of producing one unit Adhafah.besorh general, the marginal cost at each level of production includes any additional costs required to produce a unit Aladafah.aly For example, if the production additional vehicle in a factory vehicle requires, build a new factory, the marginal cost is for this vehicle include the additional cost of the plant Aljdid.amili, analysis divided the marginal cost analysis to the short-term and long-term term
And withdraw the law next
Marginal cost = change in total cost / change in quantity produced
DC = Total Cost
DQ = Total Quantity
Agree with SREEDEVI SUNILKUMAR
Marginal Costing is a technique which is used by managerial accountant to understand the behavior of both major components i,e, Fixed and Variable costs. The cost is recorded on the basis of fixed and variable nature of costs.
Marginal Cost is the cost associated with the production next unit. or the unit cost for additional unit
I agree with the gentle ladies and gentlemen in regard to their answers.
I agree with most of the answers
Excellent answers are given by all and think no need to answer further at this later stage.
Marginaly costing is a system for ascertaining total cost whereas Marginal cost form part of it.
