Book referred: Management Accounting

2. Production cost
Fixed cost
Variable cost

3. TYPES OF COST
•Does not vary with the volume of
output over a short period of time
Fixed cost
•Changes directly with the volume of
output
Variable cost
•Partly fixed and partly variable
Semi-variable
or Semi-fixed
cost

4.  Remain fixed over long period
of time
 Does not change with volume
of production
 Treated as period cost
 High FC, higher break even
 Insurance, interest expense,
property taxes, utilities
expenses and depreciation
of assets.
FIXED COST
Fixed cost= Rs.50000
5000 units
Rs.10 per phone
Fixed cost= Rs.50000
10000 units
Rs.5 per phone

5.  Changes with the
volume of output
 Cost of raw material,
labor, packaging
charges etc
 Reveals the
performance of
business
 More production,
high VC
VARIABLE COST
Produces 60 pizza Cost of raw
material= Rs. 6000
Produces 40 pizza Cost of raw
material= Rs. 4000

6. Marginal costing is defined
as, ”the amount of any given
volume of output by which
aggregate costs are changed
if the volume of output is
increased by one unit”
MARGINAL COST

7. Manufactures computer
ABC ltd. Manufactures
100 units of computer
at Rs. 5,000 each. The
total cost of
manufacturing 100
units is Rs. 500,000
They decided to produce
1 extra unit. Then the
cost of producing 101
units would be Rs.
505,000. Thus , the
Marginal cost is Rs. 5,000
i.e., 505000-500000

8. The Institute of Cost and Management Accountants, London,
defines marginal costing as:
“the ascertainment of marginal costs and of the effect on
profit of changes in volume or type of output by
differentiating between fixed and variable cost”
Concerned with changes in cost and profit resulting from
changes in volume of output
A.k.a. “variable costing”
Marginal costing= Change in cost
Change in quantity
Break-even analysis
MARGINAL COSTING

9. CHARACTERISTICS OF MARGINAL
COSTING
Decision making
Inventory
valuation
Linkage of cost
and activity
Pricing
Fixed and
Variable Cost
Marginal
Costing and
profit

10. Technique of analysis and presentation of costs which helps
management in taking many managerial decisions
Elements of cost production (administration, distribution,
selling) are classified as fixed and variable components
Variable cost  as the cost of the product
Fixed cost  period cost
Finished goods and work-in-progress are valued at marginal
cost
Prices are determined on the basis of marginal cost

11. ASSUMPTIONS OF MARGINAL
COSTING
Techniques of marginal costing are based on the following
assumptions :
Elements of cost-
Variable cost fluctuates directly in proportion to change in the
volume of output
Selling price per unit may remain unchanged or constant
Fixed costs does not change for entire volume of output
Volume of production is the only factor which influences the
costs
FIXED COST VARIABLE COST

12. THANK YOU!
Presented by:
BHARTI GOYAL D.
II B.COM [CA]