Marginal Costing & Absorption Costing

Marginal Costing & Absorption Costing

Marginal cost:

Marginal cost is the cost of a unit of  product or service which would be avoided if that until were not produced or provided.

Principal-1:Period fixed costs are the same for any volume of sales and production.

Principal-2:Profit measurement should be based on an analysis of contribution.

Principal-3:The extra costs incurred in its manufacture are the variable production cost.                            

Marginal costing is an alternative method of accounting for cost and profit, which rejects the Principles of absorbing fixed overheads into unit costs.