MEANING & DEFINITION OF MARGINAL COSTING - Accounts and Finance for Managers

Meaning and Definition of Marginal Costing

Definition: According to ICMA, London "Marginal cost is the amount at any given volume of output, by which aggregate costs are charged, if the volume of output is increased or decreased by one unit."

Meaning: Marginal cost is the cost nothing but a change occurred in the total cost due to changes taken place on the level of production i.e., either an increase / decrease by one unit of product..

The firm XYZ Ltd. incurs Rs 1000/- for the production of 100 units at one level of operation. By increasing only one unit of product i.e. 101 units, the firm's total cost of production amounted Rs 1010.

Total cost of production at first instance (C')=Rs. 1000/
Total cost of production at second instance (C")=Rs. 1010/-
Total number of units during the first instance (U')=100
Total number of units during the second instance (U")=101
Increase in the level of production and Cost of production:
Change in the level of production in units= U"-U'= U
Change in the total cost of production = C"-C, prime= C

Marginal Cost=
Change (Increase) in the total cost of production
Change (Increase) in the level of production
=
Rs. 10
1
=Rs. 10


If the same firm reduces the total volume from 100 units to 99 units. The total cost of production Rs. 990.
Decrease in the Level of production and Cost of production:

Marginal Cost=
Change (Increase) in the total cost of production
Change (Increase) in the level of production
=
Rs. 10
1
=Rs. 10



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