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18:51 NTA UGC NET 2019 By:- Assistant Professor(Ms.)Ashima Negi Candidate For Doctorate ( Ph.D.) UGC NET-Management. CA(I), MBA Finance, BBA, PGDM-Materials Management, NCFM, TQM & ISO 9000, Qs 9000 & Assurance, CCIBL
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18:51 Marginal cost Marginal costing is a principle whereby variable costs are charged to cost units and the fixed costs attributable to the relevant period is written off in full against the contribution for that period. Marginal costing is the ascertainment of marginal cost and the effect on rofit of changes in volume or type of output by differentiating between ixed costs and variable cost. In marginal costing, costs are classified into fixed and variable costs. The concept of marginal costing is based on the behaviour of costs that vary with the volume of output. Marginal costing is known as 'variable costing', in which only variable costs are accumulated and cost per unit is ascertained only on the basis of variable costs. Sometimes, marginal costing and direct costing are treated as interchangeable terms. The major difference between these two is that, marginal cost covers only those expenses which are of variable nature whereas direct cost may also include cost which besides being fixed in nature identified with cost objective.
18:51 Contribution of Marginal Costing: In marginal costing, costs are classified into fixed and variable costs. The concept marginal costing is based on the behaviour of costs with volume of output. From this approach, it is not possible to identify an amount of net profit per product, but it is possible to identify the amount of contribution per product towards fixed overheads and profits. The contribution is the difference between sales volume and the marginal cost of sales. In marginal costing it is not possible to determine the profit per unit of product because fixed overheads are charged in total to the profit and loss account rather than recovered in product costing. Contribution is a pool of amount from which total fixed costs will be deducted to arrive at the profit or loss.
18:51 The distinction between contribution and profit is given below: Contribution: 1. It includes fixed cost and profit. 2. Marginal costing technique uses the concept of contribution. 3. At break-even point, contribution equals to fixed cost. . Contribution concept is used in managerial decision making. Profit: 1. It does not include fixed cost. 2. Profit is the accounting concept to determine profit or loss of a business concern. Only the sales in excess of break-even point results in profit. 4. Profit is computed to determine the profitability of product and the concern.