• Marginal costing is a method of costing that considers only the variable costs involved in producing a unit of output. In this method, fixed costs are treated as period costs and are not included in the cost of production.
• This approach provides valuable information for decision-making such as pricing, product mix, and volume decisions.

#### Numerical Example:

Suppose a company produces 10,000 units of a product with a selling price of \$20 per unit. The total variable costs per unit are \$12, and the total fixed costs are \$50,000.

#### Features of Marginal Costing:

• Only variable costs are considered in product costing.
• Fixed costs are treated as period costs and are not included in the cost of production.
• It helps in making decisions related to pricing, product mix, and volume.

Process: To calculate the marginal cost of a product, we only consider the variable costs involved in producing a unit of output. The formula for calculating marginal cost is:

Marginal Cost = Variable Cost per Unit

Using the numerical example above, the marginal cost per unit would be \$12.

• Easy to understand and implement: Marginal costing is a simple costing method that is easy to understand and implement.
• Useful for short-term decision making: It is useful for short-term decision-making as it considers only the variable cost of production and helps to determine the contribution margin.
• Helps to determine the breakeven point: It helps in determining the breakeven point, which is the point where total revenue equals total costs.
• Helps in pricing decisions: Marginal costing helps in pricing decisions as it calculates the contribution margin per unit and helps to set the selling price.
• Useful for cost control: Marginal costing is useful for cost control as it helps in identifying the areas where costs can be reduced.