**Q:- 2 Define marginal cost and marginal costing ? How are veriable cost and fixed cost treated in marginal costing ?**

Ans.

**Marginal cost is change in total cost due to increase or decrease one unit or output.**

__Define Marginal Cost :-__

Marginal costing

Marginal costing is technique to show the effect on net profit if we classified total cost in verible cost and fixed cost .

Explaination or steps in marginal costing

Ist step

Calculation of marginal cost

Second step

Cost volume profit or break even point

Marginal cost equation

Here is veriable cost is marginal cost .

Sale = verible cost +fixed expenses +or_ profit/loss

S=V+F+_P/L

S-V=F+_P/L

Or

Sale –Verible cost =Contribution

*

Break even point analysis

Or cost volume profit analysis

Break even point is a point where total cost is equal to total sale price . In cost volume profit analysis , we establish relation of cost , volume of output and profit , we can show it with break even point chart

Mathematical formula use in study of cost volume profit analysis

1. Contribution

2. Contribution /Sale or C/S or P/V Ratio

3. Break –even point

4. Margin of safety

1. Contribution

Contribution is difference between sale and marginal cost

Contribution= Selling Price –Marginal cost/verible cost

Or

Contribution = Fixed expenses+profit

Or

Contribution – fixed expenses = Profit

2. Profit valume

Or p/v ratio= Contribution / sale =C/S

Or

p/v Ratio= fixed expenses +profit / sale =F+P/ S

or

P/V ratio = Sale – verible cost /sale = S- V/ S

3. a) Break even point ( in rs. ) = Fixed cost / P/V ratio

= F/P/V ratio

b) verible cost = sale ( 1- p/v ratio)

c) profit = ( sale X p/v ratio) – Fixed cost

d) fixed cost =( sale Xp/v ratio) – profit

e) marginal of safety = profit /p/v ratio

f) break even point ( in unit )

= total fixed expenses/ selling price unit - marginal cost per unit

g) for break even point equation

sale = cost

sale = fixed cost + verible cost

sale – verible cost = fixed cost

or

s – v = F

or

1X (S-V) = F

1= F/S-V

Break even point in break even chart