Marginal Costing

Posted in Finance, Accounting and Economics Terms, Total Reads: 1930
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Definition: Marginal Costing

Marginal cost is cost of producing additional unit or cost of producing one more unit. Ascertainment of marginal cost is marginal costing.

It is a technique, which presents us with information enabling us to consider the profitability of an undertaking by considering the behaviour of costs.
Marginal costing depends on:

  • Cost identification and separation
  • Calculation of contribution
  • Identification and separation

We need to be able to separate our costs into the various elements as described above. Our variable costs are also referred to as marginal costs, which can be defined as "every expense (whether of production, selling or distribution) incurred by the taking of a particular decision"

Formula

marginal cost

Example:

 

Units of Output

Total Cost (rupees)

Marginal Cost (rupees)

1

5

5

2

9

4

3

12

3

4

16

4

5

21

5

6

29

8

 

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