MARGINALCOSTING : MARGINALCOSTING BY: ASHISH AGGARWAL
FAYOL HOUSE
10101028HARYANA SCHOOL OF BUSINESSGJUS&T, HISSAR
Marginal Costing : Marginal Costing Meaning of Marginal cost – Marginal cost means that increase of total cost witch happens by increased or decreased by one unit in the production volume.
Example –
Unit Total cost Rs. Marginal cost Rs.
0 500 (Fixed cost) -
1 800 300
2 1100 600
3 1400 900
Marginal costing is a variable cost.
CONCEPT : CONCEPT Prime cost
Fixed Cost
Variable Cost
Contribution
Profit
Loss
Break even point concept
Basic Equation:Variable Cost = Direct Materials + Direct Labor + Direct ExpensesVariable cost per unit = Difference in cost / Difference in Activity levelVariable Cost is also called as Marginal Cost. : Basic Equation:Variable Cost = Direct Materials + Direct Labor + Direct ExpensesVariable cost per unit = Difference in cost / Difference in Activity levelVariable Cost is also called as Marginal Cost.
Marginal Cost Equation:Sales (S) = Variable Cost (V) + Fixed Expenses (F) + or – Profit (P) / Loss (L)S = SalesV = Variable CostF = Fixed Expenses+P = Profit-P = LossSales - Variable Cost = Fixed Expenses + or – Profit / LossS - V = F + or – P : Marginal Cost Equation:Sales (S) = Variable Cost (V) + Fixed Expenses (F) + or – Profit (P) / Loss (L)S = SalesV = Variable CostF = Fixed Expenses+P = Profit-P = LossSales - Variable Cost = Fixed Expenses + or – Profit / LossS - V = F + or – P
Slide 6: Contribution:
Sales – Variable Cost = Contribution = S - V
Fixed Expenses + or – Profit / Loss = Contribution = F + or – P
In simple form, S – V = F + or – P
Slide 7: Break Even Point:
A business is said to break even when its total sales are equal to its total costs.
It is a point where
There is no profit or no loss.
Contribution is equal to Fixed Expenses.
Assumptions : Assumptions Fixed cost remains unchanged.
Per unit SP remains constant.
Per unit variable cost of a product remains constant.
How To Calculate? : How To Calculate? Equation Method
High and low points Method
Least square
Analytical method
Use in Business decision making : Use in Business decision making Make OR Buy decision
Change in product Mix
Pricing decision
Slide 11: