difference between marginal cost and decision making made by KARISHMA SHARMA , SUNNY GUPTA , ANUJ GARG, J PRATEEK KUNDU , GUNJA KUMARI

1. PRESENTATION
ON
MARGINAL COSTING
&
DECISION MAKING
BY: Group-6

2. MARGINAL COSTING….
 Marginal cost is the change in total cost that arises when,`
the quantity produced changes by one unit.
 It is the cost of producing one more unit of a goods.
 If the good being produced is infinitely divisible, so the size
of a marginal cost will change with volume, as a non-linear
and non-proportional cost function.

3. PRINCIPLES OF MARGINAL COSTING….
By selling an extra item of product or services following
will happen:
 Revenue will increase by the sales value of the item sold
 Costs will increase by the variable cost per unit.
 Profit will increase by the amount of contribution earned
from the extra item.
 Profit measurement should therefore be based on the
analysis of total contribution.

4. ASSUMPTIONS OF MARGINAL COSTING….
The basic assumptions of marginal costing are :
 Total variable cost is directly proportion to the level of
activity.
 However, variable cost per unit remains constant at all the
levels of activities.
 Per unit selling price remains constant at all levels of activities.
 All the items produced by the organization are sold off.

5. Features of Marginal costing:
 It is a method of recording costs and reporting profits.
 It involves ascertaining marginal costs which is the
difference of fixed cost and variable cost.
 Fixed costs are treated as period charge and are written
off to the profit and loss account in the period incurred.
 Only variable costs are taken into consideration while
computing the product cost..

6.  Contribution ( Per unit) = Sale per unit - Variable Cost per unit
 Total profit or loss = Total Contribution - Total Fixed Costs
or Contribution = Fixed Cost + Profit
or Profit = Contribution - Fixed Cost
 Profit Volume Ratio = Contribution/ Sale X 100
 Break Even Point is a point where Total sale = Total Cost

7. MARGINAL COSTING APPROACH….
Charged cost of
goods produced
Charged as
DIRECT (RM,L)
expense when
VARIABLE goods are sold
(F.OH)

8. MARGINAL COSTING APPROACH….
Fixed( F.OH) Charged as
& all selling expenses
and adm. when
overhead incurred

9. ADVANTAGES OF MARGINAL COSTING….
 Helps in managerial decisions.
 Cost Control.
 Simple Technique.
 Constant cost per unit.
 Realistic valuation of stocks.
 Aid to profit planning.

10. DISADVANTAGES OF MARGINAL COSTING….
 Ignores time factor.
 Less effective in capital intensive industries.
 Difficulty in Application.

11. DECISION MAKING….
 It involves selecting the best course of action
from two or more available alternatives.
 And, the decision is to be taken will be,
affected by cost & other factors.

12. Special Decision Making Areas….
 Selling price decisions.
 Make or Buy decisions.
 Sales mix decisions.
 Selection of a suitable method of production.
 Plant shut down decisions.

13. DIFFRENTIAL COST ANALYSIS….
 It’s a special technique to help management in
decision-making which shows how costs and
revenues would be different under different
alternative course of action.
 Its a difference in cost between one alternative
and another.

14. LET’S HAVE SOME PRACTICAL
EXPERIENCE…