This is a technique of costing uses the concept `Marginal Cost’. Marginal cost can be defined as the change in the total cost of production as a result of a change in the production by one unit. Thus the marginal cost is nothing but a variable cost. The revenue arising from the excess of sales over variable costs is known as `contribution’. Using contribution as a vital tool, marginal costing helps to a great extent in the managerial
Thus marginal cost is the added cost of an extra unit of output.
Institute of Cost and Management Accountants (ICMA), London,
MC=Direct Material + Direct Labour + Other Variable Costs(or)
Total Cost – Fixed Cost.