marginal cost
TRANSCRIPT
MARGINAL COSTING
RamprasadhJustin ThomasJijo M DanielMurugan EDakshina Moorthy
MEANING & DEFINITION
Marginal costing is a technique of costing fully oriented towards managerial decision making and control. Marginal Costing being a technique can be used in conjunction with any method of cost ascertainment. It can be used in combination with other techniques such as budgeting and standard costing.
Marginal cost is the additional cost of producing an additional unit of a product
oMarginal costing is helpful in determining the profitability of products, departments, processes and cost centers
oMarginal cost= prime cost + total variable overheads
MARGINAL COSTING
IT IS A COSTING SYSTEM WHICH TREATS ONLY THE VARIABLE MANUFACTURING COSTS AS PRODUCT COSTS. THE FIXED MANUFACTURING OVERHEADS ARE REGARDED AS PERIOD COST
FEATURES OF MARGINAL COSTING
1) Control or decision making2) Classification3) Fixed cost 4) Variable cost5) Contribution6) Profitability7) Ascertain profit8) Cost-volume-profit relationship
ADVANTAGES
1. Simplicity2. Stock valuation3. Meaningful reporting4. Effect of fixed costs5. Profit planning6. Cost control and cost reduction7. Pricing Policy 8. Helpful to Management
LIMITATIONS
1. Classification of cost2. Not suitable for external reporting3. Lack of Long-term perspective4. Under valuation of stock5. Automation6. Production aspect is ignored7. Not applicable in all types of business8. Misleading picture9. Less scope for Long-term policy
decision
DIFFERENCE BETWEEN MARGINAL AND ABSORPTION COSTING
CHARGING OF COST
Fixed cost form part of total cost of production and distribution.
VALUATION OF STOCK
Stock and work-in-progress are valued ay both fixed and variable costs i.e, total cost.
Variable cost alone forms part of total cost of production and sales whereas fixed costs are charged against contribution for determination of profit.
Stocks are valued at variable cost only.
ABSORPTION COSTING
MARGINAL COSTING
VARIATION IN PROFITS
When there is no sales the entire stock is carried forward and there is no trading profit or loss.
PURPOSE
It is more suitable for long term decision making and for pricing policy over long term.
EMPHASIS
It lays emphasis on production.
If there is no sales the fixed overhead will be treated as loss in the absence of contribution. It is not carried forward as a part of stock value.
It is more useful for short term managerial desion making.
It lays emphasis on selling and pricing aspects.
ABSORPTION COSTING MARGINAL COSTING
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