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It is a costing technique where only variable cost or direct cost will be charged to the cost unit
produced.
Marginal costing also shows the effect on profit of changes in volume/type of output by
Salient Points:
are direct cost, this costing technique is also known as direct costing;
• In marginal costing, fixed costs are never charged to production. They are
treated as period charge and is written off to the profit and loss account in
marginal costs.
• All operating costs are differentiated into fixed and variable costs;
• Variable cost are charged to product and treated as a product cost whilst
• Fixed cost treated as period cost and written off to the profit and loss account
• Stock valuations are not distorted with present years fixed costs;
tool;
• The effect of production and sales policies is more clearly seen and
understood.
• Stock valuation under this type of costing is not accepted by the Inland
• It fails to recognize that in the long run, fixed costs may become variable;
demarcate them;
• Its not a good costing technique in the long run for pricing decision as it
ignores fixed cost. In the long run, management must consider the total
• Difficulty to classify properly variable and fixed cost perfectly, hence stock