Cost Accounting: Marginal Costing

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Contribution

Marginal Costing

Marginal Cost

KeY factor

Characteristics of Marginal Costing

Based On:  Distinction between product costs and period costs.

Costs Considered as Product costs:  Variable costs only.

Costs Considered as Period costs:  Fixed costs (will be incurred regardless of the volume of output).

                All the elements of cost are segregated into fixed and variable portion. Even the semi-variable costs are analyzed into fixed and variable portion.

Value of finished goods and work In progress: Value of finished goods and work In progress is also comprised of Marginal cost only (variable cost). Variable selling and distribution cost are excluded for valuing the above stocks. Fixed costs are also not considered.

Treatment of Fixed costs:  Fixed costs of current period are charged directly to profit and loss account.

Determination of Prices: Prices are determined after considering the Marginal cost and Contribution required.

                Profitably or otherwise of a department is determined on the Contribution margin.

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