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# MARGINAL

COSTING
PRESENTED
BY
S.GOPI
10062

DEFINITION &
MEANING

## Definition :Marginal Costing is defined as the amount at

any given volume of output by which
aggregate costs can be changed if the volume
of output is increased or decreased by one
unit.

## Meaning :Marginal Costing is the technique of

controlling by bringing out the relationship
between profit & volume.

INTRODUCTION

## The concept of Marginal Costing is also

known as variable costing because it is
based on the behavior of costs that vary
with the volume of output

2 :1. Fixed Cost
2. Variable Cost

## Fixed Cost :The expenditure remains same irrespective of

output. This includes costs which a firm has to
incur irrespective of units of production

Eg :- Building rent

## Variable Cost :As the name suggests variable cost varies

directly with output. It is directly proportional
to volume of production

FEATURES

## Only variable Costs are considered to

calculate the cost per unit of a product

Cost Controlling
Shows the difference between sales and
variable cost known as Contribution
Selling price is determined on the basis of
marginal costs

Pricing decisions

Determination of profits

Fixing responsibility

Cost control

Cost reporting

Decision making

LIMITATIONS

LIMITATIONS

## Ignores Fixed costs in valuation of stock of

WIP & finished goods

## Not recognized by Income tax authorities

CONCEPT OF CONTRIBUTION

cost

## It is an assumption that excess of sales over

variable cost contributes to a fund not only which
covers fixed cost but also provides some profit

breakeven

Fixing
up selling price
of bulk
orders
CONTRIBUTION
= SALES
VARIABLE

COST

PARTICULARS
SALES
- VARIABLE
COST
CONTRIBUTIO
N
- FIXED COST
PROFIT

1000

COST PER
UNIT
10

- 400

600

300
300

3
3

AMT (Rs.)

PROFIT VOLUME
RATIO

## It expresses relationship between

Contribution & Sales
P/V RATIO

= CONTRIBUTION x 100
SALES

NO LOSS

## Total Fixed Cost

Contribution per unit

## Total Fixed Cost

P/V Ratio

100

BREAKEVEN ANALYSIS

MARGIN OF SAFETY

sales

breakeven sales

Margin Of Safety

Profit
P/V Ratio

THANK YOU