APPLICATION OF MARGINAL COSTING WITH DAY TO DAY LIFE EXAMPLE

1. Presentation on Application of Marginal
Costing
Presented by Dr.Savita Thorat
For 57th Online Refresher
Course:Commerce and Management
organised by UGC-HRDC Sardar Patel
University

2. Marginal costing is the one of the technique of
decision making for the management
MARGINAL COSTING WHICH IS ALSO KNOWN AS VARIABLE COSTING,DIRECT
COSTING IS USED AS A TOOL FOR DECISION-MAKING BY THE MANAGEMENT
AND ALSO A NEW CONCEPT IS GAINING WIDE POPULARITY IN THE FIELD OF
ACCOUNTING.THE TERM MARGINAL COSTING IS COMMONLY USED IN UK AND
OTHER EUROPEAN COUNTRIES DENOTED AS DIRECT COSTING/VARIABLE
COSTING.
THE TERM MARGINAL COSTING SEEMS TO BE INAPPROPRIATE BUT VARIABLE
COSTING IS SEEMS TO BE APPROPRIATE AND ACCEPTABLE BECAUSE IN
MARGINAL COSTING ALL COST DIVIDED INTO FIXED COST AND VARIABLE COST
AND ALL MARGINAL COSTING TECHNIQUE DEPEND ON THESE TWO COST.

3. MARGINAL COSTING
ACCORDING TO ICMA “MARGINAL COSTING IS THE ASCERTAINMENT OF
MARGINAL COST AND OF THE EFFECT ON THE PROFIT OF CHANGES IN VOLUME
OR TYPE OF OUTPUT BY DIFFERENTIATING BETWEEN FIXED COST AND
VARIABLE COST, IN THIS TECHNIQUE OF COSTING ONLY VARIABLE COST ARE
CHARGED TO OPERATIONS,PROCESSES OR PRODUCTS,LEAVING ALL INDIRECT
COSTS TO BE WRITTEN OFF AGAINST PROFITS IN THE PERIOD IN WHICH THEY
ARISE.”
MARGINAL COSTING IS MORE USEFUL TECHNIQUE FOR COST CONTROL, PROFIT
PLANNING AND DECISION MAKING

4. Application of Marginal Costing
Following are some managerial problems which are simplified by the use of Marginal Costing
1. Key or Limiting factor analysis
2. Price fixation or diversification
3. Make or buy decision
4. Selection of suitable product mix
5. Profit planning
6. Discontinuance of product line
7. Alternative method of production
8. Contribution analysis
9. Accept or reject new order and subcontracting
10. Temporary cessation of operations

5. Key or Limiting factor analysis
Every business organisation tries to achieve maximum profit but there are always certain
factors which does not allow the organisation to earn more profits. This are the constraints of
the business. This constraints are treated as key/limiting factor.It is defined as that factor
which limits the desired volume of production
Examples -
1. Shortage of material
2. Shortage of labour
3. Shortage of plant capacity
4. Shortage of factory space
5. Lack of market demand
6. Shortage of finance

6. Model for Agro-tourism centre
Source-Assessment of Agro-tourism potential of Pune District Ph.D thesis of Dr.S D Thorat

7. Probable Expenses and Income of Agro-tourism Centre
Source-Assessment of Agro-tourism potential of Pune District Ph.D thesis of Dr.S D Thorat

8. Marginal costing techniques apply to
Agro-tourism industry
Selling price per unit 700(500+200)
_Variable Cost per unit (60% of selling price) 420 (300+120)
Contribution per unit 280(200+80)
Fixed Cost 10,65,000/3 year=3,55,000 per
year(recovery rate 3 years)
P/V Ratio 40 %
Break even point (in units/in Rs.) 1268 tourists/Rs.8,87,500

9. Covid-19 and Tourism
The COVID-19 pandemic has caused significant disruptions in the global economy.
By the end of the first quarter of 2020, the COVID-19 pandemic had brought international travel to an abrupt halt and
significantly impacted the tourism industry.
For many developed and developing countries, the tourism sector is a major source of employment, government revenue
and foreign exchange earnings.
Without this vital lifeline, many countries may experience a dramatic contraction in GDP and a rise in unemployment.
Using a computable general equilibrium model (GTAP), we assess the implications of the COVID-19 crisis on the tourism
sector.
Depending on the duration of the global lockdown, the paper estimates the direct and indirect costs of the shutdown for 65
individual countries and regions and 65 sectors, covering the global economy.
In some countries, unemployment could rise by more than 20 percentage points and some sectors could nearly be wiped
out if the duration of the tourism standstill is up to one year.

10. By applying marginal costing technique
industryfaces the current situation
1. Key or Limiting factor analysis
2. diversification
3. Profit planning
4. Contribution analysis
5. Alternative method of production
6. Temporary cessation of operations

11. THANK YOU

12. Application of marginal costing in soving
problems of agro-tourism industry
1. Diversification
2. Profit Planning
3. Alternative method of production
4. Contribution analysis
5. Temparory cessation of operation

13. Thanks