Page 32 - Cost Accounting - Ready Reckoner

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CHAPTER – 10

Techniques of Costing

The following are the techniques of costing:

 Marginal Costing
 Standard Costing
 Budgetary Control

Marginal Costing:

Marginal Costing is a technique of Cost control. Sum of all the variable costs is
called Marginal Cost.

It aids management in taking a decision based on contribution of the product.

Decisions taken on the basis of Marginal Costing:

1) Usage of a limited resource – limiting factor
2) Make or buy of a component.
3) Shut down or continuation of a department.
4) Sales mix of products.
5) Acceptance or rejection of export Order.

To take the above decision, the following formulae are used:

P/V Ratio = x 100

(Profit to Volume Ratio)

Contribution = Sales x P/V Ratio

Sales =
/

P/V Ratio = 1 – V.C Ratio (Variable Cost Ratio)

V.C Ratio = 1 – P/V Ratio

ℎ
P/V Ratio = x 100
ℎ

The above formula is used when comparative values of sales & profit is
given for two periods.