Marginal Costing is ascertainment of the marginal cost which varies directly with the volume of production by differentiating between fixed costs and variable costs and finally ascertaining its effect on profit.

The basic assumptions made by marginal costing are following:

- Total variable cost is directly proportion to the level of activity. However, variable cost per unit remains constant at all the levels of activities.

- Per unit selling price remains constant at all levels of activities.

- All the items produced by the organisation are sold off.