Hello buddy here we provides you meaning and advantages of marginal
costing are as

According to the Institute of Cost and Management Accountant marginal cost
is ‘‘The amount at any given volume of output by which aggregate costs are
changed if the volume of output is increased or decreased by one unit.’’



In other words marginal cost is the cost of producing one additional unit.
cost.



An example will clarify the matter. Suppose, a company produces 1,000 units
of product ‘X’, Total Fixed Cost is Rs. 50,000 p.a., variable cost per unit is
Rs. 100. So, total cost of 1,000 units comes to Rs. 50,000 + Rs. 1,00,000
(1,000 x Rs. 100) = Rs. 1,50,000.

If output is increased by one unit, the total cost of 1,001 units will be :

Rs.

Variable Cost 1,001, x 100 = 1,00,100

Fixed Cost = 50,000

1,50,100

Therefore, Marginal Cost per unit = Rs. 1,50,100 – Rs. 1,50,000

= Rs. 100 per unit

The following benefits can be derived from the technique of Marginal Costing
:

1. A simple Technique in decision making

It is a simple technique in decision making. Since fixed overheads are not
included in the cost of production there is no need for complicated and

expensive method of finding out overheads recovery rate,

2. It helps in Cost Control

Marginal Costing is essentially a managerial tool for cost control, cost
analysis and cost presentation. It presents the data in a manner which helps
the various levels of management for controlling costs

3. Basis for Managerial Reporting

The technique of Marginal Costing serves as a good basis for managerial
reporting. Reports prepared on the basis of this technique provide

information based on sales rather than on production.

4. Application in Profit Planning

Marginal Costing helps the management in the area of profit planning. Break-
even Analysis and Margin of Safety are the tools for profit planning. It also
facilitates the analysis of cost profit-volume relationship.

5. Easy Understanding of Income Statement

Management can easily understand the income statement prepared by
allocating fixed expenses and variable expenses separately. Moreover, stock
valuation becomes easier since it is valued at marginal cost which remains
constant.