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 indirect
cost to be written off against profits in period in which
they arise.

All costs fixed &variable are

included for ascertaining the
cost.
Difference between sales &total
cost is profit.
A portion of fixed costs is
carried forward to the next
period because closing stock of
work -in -progress & finished
goods is valued at cost of
production which is inclusive of
fixed cost. In this way costs of a
particular period are vitiated
because fixed cost being period
cost should be charged to the
period concerned & should not
be carried over to next period .
.

Only variable cost are

included .fixed cost are
recovered from
contribution.
Marginal cost per unit will
remain same at different
levels of output because
variable expenses vary in
the same proportion in
which output varies.
Difference between sales
and marginal cost is
contribution and difference
between contribution and
fixed cost is profit or loss.

The apportionment of fixed

expenses on an arbitrary
basis given rise to over or
under absorption which
ultimately makes the product
cost inaccurate and
unreliable.
Absorption costing is not
very helpful in taking
managerial decision such as
whether to accept the export
order or not ,whether to buy
or manufacture ,the
minimum price to be charged
during depression etc.

Stock of work- in-progress and

finished goods are valued at
marginal cost which does not
include fixed cost .Fixed cost of
a particular period is charged to
that very period and is not
carried forward to next period by
including in closing stock .Being
so ,cost of a particular period are
not vitiated.
Only variable cost are charged
to products .marginal cost
technique does not lead to over
or under absorption of fixed
overheads.

Costs are classified

according to functional
basis such as production
cost ,office and
administrative cost and
selling and distribution cost.
Costs are classified
according to functional
basis such as production
cost ,office and
administrative cost and
selling and distribution cost.

The technique of marginal

costing is very helpful in
taking managerial
decisions because it takes
into consideration the
additional cost involved
only assuming fixed
expenses remaining
constant.
Cost are classified
according to the behaviour
of cost i.e. fixed cost and
variable cost.

Absorption costing fails

to establish relationship
of cost volume and profit
as costs are seldom
classified into fixed
&variable
Different unit costs are
obtained at different
levels of output because
of fixed expenses
remaining same.

Cost ,volume and profit

relationship is an integral
part of marginal cost
studies as costs are
classified into fixed and
variable costs.

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.

MARGINAL COST EQUATION

CONTRIBUTION MARGIN .
PROFIT /VOLUME RATIO .
BREAK EVEN POINT .
MARGIN OF SAFETY.

SALES= VARIABLE COSTS +FIXED

EXPENSES+P/L
OR
S-V=F+P/L

CONTRIBUTION = SELLING PRICE MARGINAL COST

OR
C=F+P/L
OR
C-F=P/L

P/V = CONTRIBUTION /SALES

OR
F+P/L/V.C+F.C+P/L=[F+P/S]
OR
S-V/S=CHANGE IN PROFITS OR CONTRIBUTION/CHANGE
IN SALES

B.E.P = FC/P/V
OR
TOTAL FIXED EXPENSES/S.P PER UNIT-MC PER UNIT
OR
TOTAL FIXED EXPENSES/CONTRIBUTION PER UNIT

SALES = F.C+D.P/P/V RATIO

MOS = PROFIT/P/V RATIO

Includes fixed cost &

profit .
Based on marginal
cost concept.
Contribution above
break even contributes
to profit.
Contribution analysis
requires a knowledge
of break even concept.

Does not include fixed

cost.
Based on common
man concept.
Profit is expected only
after covering variable
and fixed cost.
Profit does not require
any such concept.

COST CONTROL.
PROFIT PLANNING.
EVALUTION OF PERFORMANCE.
DECISION MAKING.
FIXATION OF SELLING PRICE.
KEY LIMITING FACTOR.
SUITABLE PRODUCT MIX.