Marginal Costing:


Marginal costing is also known as Variable casting and Direct costing.


in marginal costing only variable costs are charged as " cost of sales"
and contribution is calculated.
(contribution = sales revenue - variable cost of sales)

closing stock of W.I.P of finished goods are valued at MARGINAL ( variable ) production cost.

fixed costs are treated as period cost , and is charged in full in profit and loss account for the part of the accounting period in which they are incurred.

Marginal and Absorption costing

To understand this topic we must have to develop concept relating to fixed and variable costs.

Fixed cost: a fixed cost is a cost which tends to be unaffected by the increase or decrease in the volume of output e.g rent and insurance

Variable cost: variable cost is a cost which increase or decrease with the volume of activity. e.g material, labor,sales commision