marginal costing


Also found in: Dictionary, Thesaurus, Medical, Encyclopedia.

Marginal Cost

The total cost to a company to produce one more unit of a product. The marginal cost varies according to how many more or fewer units a company wishes to produce. Increasing production may increase or decrease the marginal cost, because the marginal cost includes all costs such as labor, materials, and the cost of infrastructure. For example, if a widget manufacturer increases the number of widgets it produces, it may need to buy more material, but the costs of labor and factory maintenance remain the same, and are spread out over a greater number of widgets. This may reduce the marginal cost. On the other hand, if the manufacturer hires more workers and builds another factory, it will likely increase the marginal cost. It is also known as the incremental cost.
Marginal costingclick for a larger image
Fig. 55 Marginal costing. A typical example.

marginal costing

a system of product COSTING which assigns variable materials and labour costs to units of product manufactured but which does not assign fixed OVERHEAD costs to products. Fig. 55 shows an illustration of marginal costing.

With marginal costing, work in progress and finished goods stocks are valued at direct materials and direct labour costs only, and fixed overhead costs are charged as a single block against revenues in the period when. they are incurred. By contrast, with ABSORPTION COSTING fixed overhead costs are included in the value of work in progress and finished goods stock.

See CONTRIBUTION, BREAKEVEN.

References in periodicals archive ?
Consistent with the reporting system of Marginal Costing, this practice can be justified by the time scale used in cost planning and particularly cost differentiation.
Institutional-economic considerations transcend the conventional Marginal Costing principles of transfer prices.
As Riebel's Direct Costing and Contribution Margin Accounting began to merge with Marginal Costing, sales accounting became more sophisticated in practice.
69 INTEGRATING MARGINAL COSTING INTO MANAGEMENT ACCOUNTING
Individual activity/process amounts can, however, also be costed using the methodology of Marginal Costing.
If cost accounting is to better support cost control efforts in the early stages of product development, cost estimates are needed that do not use the costing basis of Marginal Costing such as BOMs and routings (concurrent costing) (132) and that include estimation methods that attempt to capture cost relationships through the establishment of neural networks with test data due to lack of previous analytical exposure.
Layer, forecasting fixed costs--which is gaining in significance in cost planning--should be based on a dynamic investment function, differentiate between avoidable and unavoidable costs, and be incorporated in a corresponding authorized Marginal Costing system.
610 MARGINAL COSTING AS A FOUNDATION FOR VALUE-BASED MANAGEMENT ACCOUNTING
The parameters of Marginal Costing and contribution margin accounting continue to be suitable for this purpose.
153) Estimation of the cash flow forces the planning of concrete resources, capacities, processes, and products in the same way as is required in Marginal Costing.
7 MARGINAL COSTING AS THE NUCLEUS OF MANAGEMENT ACCOUNTING
In conclusion, cost accounting on the basis of Marginal Costing supplemented by process-centric methods of cost accounting and embedded in a sophisticated contribution margin accounting system forms the core element of management accounting.