What is Marginal Costing - Accounts and Finance for Managers

"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." Marginal Costing is defined as "the ascertainment of marginal cost and of the effect on profit of changes in volume or type of output by differentiating between fixed and variable costs."

In marginal costing, the change in the level of cost of operation is equivalent to variable cost due to fixed cost component which is fixed irrespective level of outputs. Break Even Point is the point at which the Total Cost is equivalent to Total Revenue. At the break even point the business neither earns profit nor incurs a loss. It means that the firm's cost is recovered at the minimum level of production. PV ratio is Profit Volume ratio which establishes the relationship in between the profit and volume of sales. It a ratio normally expressed in terms of contribution towards volume of sales. It is expressed in terms of percentage. Key factor is nothing but a limiting factor or deterring factor on sales volume, production, labour, materials and so on.

The limiting factor normally differs from one to another

Volume of sales- the limiting factor is that production of required number of articles

In the market, dealership is offered by the various companies to the individual intermediaries in promoting the sale of products. Before reaching an agreement with the company to act as a dealer, normally every individual consider the profitability of the product mix offered by the firm.


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