MARGINAL COSTING

Definition of Marginal Costing

The expenditure incurred by producing a further unit of a product or service, or the
expenditure saved by not producing it. Marginal cost pricing is the fixing of the price
of all units at the cost of producing the last unit.

Uses of Marginal Costing

 For dropping a product or discontinuing a department.

 Make or buy decisions.
 Accepting a special order (at a lower price than normal).
 Dealing with a limiting factor or multiple limiting factors.

What is different between marginal costing and absorption

costing?

Marginal costing is also known as contribution costing.

Its a costing method that’s includes only a variable cost of a product no
attempt is made to allocate or appropriate fixed costs to cost centers.
The setting of prices is basically based on the variable costs of making a
product.
If the prices are set above this unit cost then each item sold will make a
condition to fixed costs.
On the other hand absorption costing or full costing is an approach to the
costing of products that allocated all costs of production to cost centers. The
aim is to ensure that all business costs are covered.