PPT: Marginal Costing | Cost and Management Accounting for CA Intermediate PDF Download

 Page 1


1. To understand the basic concepts of marginal cost and 
marginal costing.
2. To understand the concepts of Contribution, P/V ratio, 
BEP and Margin of safety (Quantity & Value).
3. To know the concept of Cost V olume Profit(CVP)
Page 2


1. To understand the basic concepts of marginal cost and 
marginal costing.
2. To understand the concepts of Contribution, P/V ratio, 
BEP and Margin of safety (Quantity & Value).
3. To know the concept of Cost V olume Profit(CVP)
Marginal Cost
? Marginal Cost is defined as, ‘ the change in aggregate 
costs due to change in the volume of production by one 
unit.’
? Marginal cost is the additional cost incurred in the 
production of one more unit of a good or service.
? It is derived from the variable cost of production, given 
that fixed costs do not change as output changes, hence 
no additional fixed cost is incurred in producing another 
unit of a good or service once production has already 
started.
Page 3


1. To understand the basic concepts of marginal cost and 
marginal costing.
2. To understand the concepts of Contribution, P/V ratio, 
BEP and Margin of safety (Quantity & Value).
3. To know the concept of Cost V olume Profit(CVP)
Marginal Cost
? Marginal Cost is defined as, ‘ the change in aggregate 
costs due to change in the volume of production by one 
unit.’
? Marginal cost is the additional cost incurred in the 
production of one more unit of a good or service.
? It is derived from the variable cost of production, given 
that fixed costs do not change as output changes, hence 
no additional fixed cost is incurred in producing another 
unit of a good or service once production has already 
started.
Marginal cost
Particular Rs.
Direct Material XX
Direct labour XX
Direct Expenses XX
Prime Cost XX
(+) Total Variable overhead XX
Marginal cost per unit XXX
Page 4


1. To understand the basic concepts of marginal cost and 
marginal costing.
2. To understand the concepts of Contribution, P/V ratio, 
BEP and Margin of safety (Quantity & Value).
3. To know the concept of Cost V olume Profit(CVP)
Marginal Cost
? Marginal Cost is defined as, ‘ the change in aggregate 
costs due to change in the volume of production by one 
unit.’
? Marginal cost is the additional cost incurred in the 
production of one more unit of a good or service.
? It is derived from the variable cost of production, given 
that fixed costs do not change as output changes, hence 
no additional fixed cost is incurred in producing another 
unit of a good or service once production has already 
started.
Marginal cost
Particular Rs.
Direct Material XX
Direct labour XX
Direct Expenses XX
Prime Cost XX
(+) Total Variable overhead XX
Marginal cost per unit XXX
? Marginal Costing is a costing technique wherein
the marginal cost, i.e. variable cost is charged to units
of cost, while the fixed cost for the period is completely
written off against the contribution.
? Ascertainment of cost and measuring the impact on profits
of the change in the volume of output or type of output.
? Marginal costing is a very useful technique of costing for
decision-making.
? In marginal costing, costs are segregated into fixed and
variable
Page 5


1. To understand the basic concepts of marginal cost and 
marginal costing.
2. To understand the concepts of Contribution, P/V ratio, 
BEP and Margin of safety (Quantity & Value).
3. To know the concept of Cost V olume Profit(CVP)
Marginal Cost
? Marginal Cost is defined as, ‘ the change in aggregate 
costs due to change in the volume of production by one 
unit.’
? Marginal cost is the additional cost incurred in the 
production of one more unit of a good or service.
? It is derived from the variable cost of production, given 
that fixed costs do not change as output changes, hence 
no additional fixed cost is incurred in producing another 
unit of a good or service once production has already 
started.
Marginal cost
Particular Rs.
Direct Material XX
Direct labour XX
Direct Expenses XX
Prime Cost XX
(+) Total Variable overhead XX
Marginal cost per unit XXX
? Marginal Costing is a costing technique wherein
the marginal cost, i.e. variable cost is charged to units
of cost, while the fixed cost for the period is completely
written off against the contribution.
? Ascertainment of cost and measuring the impact on profits
of the change in the volume of output or type of output.
? Marginal costing is a very useful technique of costing for
decision-making.
? In marginal costing, costs are segregated into fixed and
variable
? It is a technique of costing which is used to ascertain the
marginal cost and to know the impact of variable cost on the
volume of output.
? Selling price is based on marginal cost plus the contribution.
? Profit is calculated by deducting marginal cost and fixed
cost from sales.
? The profitability of product or department is based on
contribution made available by each product or department.
? Cost V olume Profit (or Break Even) Analysis is one of the
integral parts of marginal costing.
? Valuation of stock of work in progress and finished goods is
done on the basis of marginal cost.