value of marginal costing to management in agribusiness aspect .

1. 
MARGINAL COSTING
Submitted by:
Swikar
K.Hemanth
Devesh Shukla
Harshad chandrakanth
Aparna.N
INDIAN INSTITUTE OF PLANTATION
MANAGEMENT

2. 
 Marginal cost is the change in the total cost that
arises when the quantity produced is incremented by
one unit, that is, it is the cost of producing one more
unit of a good. In general terms, marginal cost at
each level of production includes any
additional costs required to produce the next unit.
What is Marginal cost ??

3. 
 Marginal cost – cost of producing an additional unit
or output or service
 Marginal costing differentiates the fixed and variable
costs
Basics of marginal
costing

4. 
 Semi-variable costs are included in comparison of
cost
 Only variable costs are considered
 Fixed costs are written off
 Prices are based on variable and marginal
contribution
Features Of Marginal
Costing

5. 
 Profit = Sales – Total cost
 Profit = Sales – (Variable cost + Fixed cost)
 Profit + Fixed cost = Sales – Variable cost
 Sales – Variable cost = Contribution = Fixed cost +
Profit
 Contribution – Fixed cost = Profit
Basic equation of Marginal
Costing

6.  It integrates with other aspects of management
accounting.
 Management can easily assign the costs to
products.
 It emphasizes the significance of key factors.
 The impact of fixed costs on profits is emphasized.
 The profit for a period is not affected by changes
in absorption of fixed expenses.
 There is a close relationship between variable
costs and controllable costs classification.
 It assists in the provision of relevant costs for
decision-making.
Value Of Marginal
Costing To Management

7.  To segregate the total cost into fixed and variable
components is a difficult task
 Under marginal costing, the fixed costs are eliminated for
the valuation of inventory , in spite of the fact that they
might have been actually incurred.
 In the age of increased automation and technological
development, the component of fixed costs in the overall
cost structure may be sizeable.
 Marginal costing technique does not provide any
standard for the evaluation of performance.
 Fixation of selling price on marginal cost basis may be
useful for short term only.
 Marginal costing can be used for assessment of
profitability only in the short run.
Limitations Of Marginal
Costing

8. 
 Contribution = Sales – Variable Cost
 Contribution = Fixed Cost + Profit
Contribution

9. 
 This ratio indicates the contribution earned with
respect to one rupee of sales.
 It is also known as Contribution Volume or
Contribution sales ratio.
 Fixed costs remain unchanged in the short run, so if
there is any change in profits, that is only due to
change in contribution.
Profit Volume (P/V)
Ratio

10. 
 This is a situation of no profit and no loss. It means
that at this stage, contribution is just enough to cover
the fixed costs, i.e. Contribution = Fixed
cost
Break-even Point (BEP)

11. 
 These are the sales beyond the break-even point.
 A business will like to have a high margin of safety
because this is the amount of sales which generates
profits.
 Margin of Safety = Sales – Break-even Sales
Margin Of Safety

12. 
Thank you