Marginal Costing

Marginal costing is a cost accounting approach that focuses on the additional costs incurred when producing one more unit of a product. It distinguishes between fixed costs, which remain constant regardless of production levels, and variable costs, which change with production volume. By analyzing marginal costs, businesses can make informed decisions about pricing, production levels, and profitability. Essentially, it helps management understand how much it will cost to produce extra items and whether those additional costs will be covered by the revenue generated from selling them. This insight supports effective financial planning and resource allocation.