What is Meant by Marginal Costing?
Subject: Accounting | Topics:

What is meant by Marginal Costing?

The marginal cost of an additional unit of output is the cost of the additional inputs needed to produce that output.  More formally, the marginal cost is the derivative of total production costs with respect to the level of output.Marginal cost is the cost to a firm of producing one extra unit of product.

Marginal cost and average cost can differ greatly.  For example, suppose it costs $1000 to produce 100 units and $1020 to produce 101 units.  The average cost per unit is $10, but the marginal cost of the 101st unit is $20

The Econ Model applications Perfect Competition and Monopoly emphasize the roles of average cost and marginal cost curves.  The short movieDerive a Supply Curve (40 seconds) shows an excerpt from the Perfect Competition presentation that derives a supply curve from profit maximizing behavior and a marginal cost curve.  A firm achieves its maximum possible total profit when MR = MC (ie: when marginal profit = 0, which means that producing and selling one extra unit will cost $x and will yield revenue of $x too). Before the point where MR = MC, total profit is rising. After that point, total profit is declining (but there are not necessarily losses).

When making decisions regarding production increases or decreases, a firm should base its thinking on marginal costs and revenues rather than on total or average ones because it is the “marginal” side of the picture that will change when output is changed.

Marginal Costing

Related Accounting Paper:

Popular Accounting Paper:

Contemporary Issues of Cost and Management Accounting in Bangladesh

Abstract Cost and Management Accounting practice helps an organization to survive in the competitive, ever-changing world, because it provides an important competitive advantage for an organization that guides managerial action, motivates behaviors, supports and creates the cultural values necess.....

Accounting Principle : The Recording Process

The Recording Process are entering transactions in the general journal and posting them to the correct general ledger accounts is time consuming. In the general journal, a simple transaction requires three lines—two to list the accounts and one to describe the transaction. The transaction must .....

Traditional Approaches to Accounting Formulation Theory

Introduction Various approaches have applied over time to the formulation of an accounting formulation theory. Some of these approaches are known as “traditional” approaches, because they are characterized by the absence of a vigorous process of verification in the attempt to develop an accou.....

Account Receivable Management at Tata Steel

The project deals in “account receivable management at Tata Steel”. Account receivable management is one of the most important aspects of an organization, as it deals with the management of the outstanding. The profit of the company mainly depends on the accounts receivables. This report brie.....

Internship Report on Accounting System of Uttara Bank Ltd Shymoli Branch Dhaka

 1.1    Introduction: The internship program of BBA students of Department of Marketing, Institute of Business Studies, DarulIhsanUniversity, is an imputing part of the BBA program, 3 credit hours are for this internship program, out of 135 credit hours of the program. The program is for 3 m.....