Prof.

Subhasis Pal
Asst.Professor & HOD – M.Com. & BBA
Sinhgad College of Arts & Commerce,Pune
Educational Qualification:
M.Com.(A/c) , M.Com.(Buss. Admin.) , MBA
(Fin.),PGDM,PGDMM ,PGDHRM , LLB , ICWA(Inter) , NET
(Com.) , NET (Mgt.), DME ,M.Phil., Ph. D (Pursuing)
Experience :
(a) Industrial: Approx 20 years in Indian Air Force
(b) Teaching : 14 years both in PG & UG
(c) Chairman , Examiner , Paper Setter & Project Guide,
(SPPU, IGNOU,CS ,ICWA & CA) , NAAC Steering
Committee Co ordinator
Amount at any given volume of output by
which aggregate costs are changed if volume
of output is increased or decreased by one
unit .It relates to change in output in
particular circumstances under
consideration.
Marginal costing is the ascertainment of
marginal cost and of the effect on profit of
changes in volume or type of output by
differentiating fixed cost &variable cost .In
this technique of costing only variable cost
are charged to operation ,processes or
products leaving all Fixed cost to be written
off against profits in period in which they
arise.
Fixed expenses are not allocated to cost
units but are charged against ‘fund’ which
arises out of excess of sales price over total
variable costs.
 Technical difficulties.
 Time taken for completion of jobs is not
given due attention.
 Less effective.
 Balance sheet will not exhibit true and fair
view.
 Problem of apportionment of variable cost
still arises.
 Difficulty to apply in contract or ship building
industry.
 Does not provide any standard.
 General reduction in selling price and thus
losses.
 Fixed cost remain static & marginal costs are
completely variable at all levels of output.
 Selling prices are constant at all sales volume.
 Factor prices are constant at all sales volume .
 Efficiency and productivity remain unchanged. In
a multi product situation ,there is constant sales
mix at all level of sales.
 Turnover level is only relevant factor affecting
cost & revenue.
 Value of production is equal to volume of sales.
 Margin
Of
Break
Safety
Even
Point
Marginal Cost
Equation
Contribution
Margin

Profit/
Volume Ratio

.
 Includes fixed cost  Does not include
& profit . fixed cost.
 Based on marginal  Based on common
cost concept. man concept.
 Contribution above  Profit is expected
break even only after covering
contributes to variable and fixed
profit. cost.
 Contribution  Profit does not
analysis requires a require any such
knowledge of break concept.
even concept.
1.COST CONTROL.
2.PROFIT PLANNING.
3.EVALUTION OF PERFORMANCE.
4.DECISION MAKING.
5.FIXATION OF SELLING PRICE.
6.KEY LIMITING FACTOR.
7.OPTIMIZING THE PRODUCT MIX.
 Marginal costing divides the total cost into
fixed and variable cost.
 Fixed cost can be controlled by the top
management and that to a limited extent.
 Variable costs can be controlled by the
lower level of management.
 Marginal costing by concentrating all
efforts on the variable costs can control
and thus provides a tool to the
management for control of total cost.
Profit figure is planned and activity level is
determined to achieve that planned profit
A product, department, market or sales
division giving higher contribution should be
preferred if fixed expenses remain same.
 Product is priced competitively so that contribution
by each product may be sufficient enough to recover
the fixed cost and profit.
 If selling price of the product is fixed at Marginal
Cost, the amount of loss will be the amount of fixed
overheads and the amount of loss will be same or
lower if the production is suspended or closed down.
 Long run consists of a series of short run. We must
aim at maximizing contribution in each short run
which lead profit maximization in the long run .
 Meaning: factors which limits the desired volume of production
at a particular period.
 Profitability = Contribution / Key factor
 Termed as scares factor , principal budget factor , governing
factor
 Examples – sale ,labour, raw material , plant capacity ,
availability of capital
 Contribution per unit key factor has to be computed and the
product which gives the greatest contribution per unit of key
factor is considered.
 Such product is taken for production to maximize the profit
The product mix which gives the maximum
contribution is selected and produced in
maximum possible quantities
 Make or buy decision :
Purchase price is lower than the marginal
cost outsourcing is right decision
Note:
unutilized capacity : Fixed cost excluded
No unutilized capacity :
MC + traceable F/C + Loss of Contribution
 Alternative method of production :
The method of manufacture which yields
the greatest contribution should be
selected.
1. Budget Factor / Key Factor
2. Types of Budgets
3. Preparation of cash Budget
a. receipt & payment methods
b. Adjusted Profit & Loss Method
c. Balance sheet Method
4. Preparation of Flexible Budget
5. Responsibility Centre
6. Zero- Based Budgeting