MARGINAL COSTING

Prepared By: Mandar Deshmukh Nishank Gonsalves Ganesh Injekar Reshma Kamble 

  

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³the ascertainment.  MARGINAL COSTING: Marginal Costing is defined by ICMA. by differentiating between Fixed and Variable Costs.´ .DEFINITION  MARGINAL COST: Marginal Cost is defined as the cost of one more or one less unit produced besides existing level of production. and of the effect on profit of changes in the volume and type of output. of marginal costs.

FEATURES  Cost Classification Stock / Inventory Classification Marginal Contribution   .

ADVANTAGES         Easy to understand Constant in nature Realistic Relative profitability Aid to profit planning BeakBeak-even point Pricing Decisions Meaningful reporting .

.LIMITATIONS         Analysis of overheads Greater emphasis on sales Difficulty in application Less effective in capital intensive industry Elimination of fixed cost Incomplete information Useful only for short term assessment Not acceptable for tax.

 Formula : C=S±V Where. C = Contribution S = Sales V = Variable Cost .TERMINOLOGY  CONTRIBUTION:CONTRIBUTION:Excess of selling price over variable cost.

 Formula: Formula: P/V ratio = Sales ± Variable Cost 100 OR = Contribution Sales . ProfitProfit-volume Ratio (P/V ratio) ::When the contribution from sales is expressed as a percentage of sales value. it is known as P/V ratio.

 BREAK-EVEN POINT: BREAKIt is the point at which total revenue is equal to total cost. (units) = Fixed Cost Selling Price ± Variable Cost OR = Fixed Cost Contribution per unit .E.P. Formula: B.

 B.P.E. (Rs) = Fixed Cost Contribution per unit OR = Fixed Cost P/V Ratio .

S = Profit P/V Ratio OR = Actual Sales ± BEP Sales (Rs) OR = Actual Sales(units) ± BEP(units) .O. MARGIN OF SAFETY : It is the excess of present sales value over the break even sales. Formula: M.

O.CONCEPT OF PROFIT  Profit is the excess of contribution over fixed cost. Formula:  Profit=ContributionProfit=Contribution-Fixed Cost OR =M.S x P/V Ratio .

EXAMPLE .

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