Example of Marginal Costing

Example of Marginal Costing

In Marginal costing only the variable cost is taken into account and fixed cost are charged as period cost. Under marginal costing first contribution is calculated and then fixed cost are deducted from the contribution.

 It is important to remember that in absence of inventory profit under the marginal costing and absorption costing is same because difference of profit is arises due to different methods of the valuation of stock under marginal and absorption costing.

Example of Marginal Costing

In below example the basic concept of the marginal costing is being clarified and therefore there is no element of inventory is included in the following example.

Sales Price	30 per unit
Direct Material	16 per unit
Direct Labor	8  per unit
Direct Expenses	2   per unit
Factory Rent	10,000
Heating Factory	5,000
Output produced and Sold	12,000 units

Calculated profit under Marginal Costing

Solution

	Units	Rate	Total
Sales	12,000	30	360,000
Less: Variable Cost	12,000	(16+8+2)=26	(312,000)
Contribution			48,000
Less: Fixed Cost		(5,000+10,000)	(15,000)
Profit			33,000