Explain marginal costing.

Marginal costing, also known as variable costing, is a costing technique that focuses on the behavior of costs concerning changes in production volume. It segregates costs into variable costs and fixed costs based on their behavior with respect to changes in output levels. Variable costs, such as direct materials and direct labor, vary in direct proportion to changes in production volume. Fixed costs, such as rent, salaries, and depreciation, remain constant regardless of changes in production volume within a relevant range. Marginal costing calculates the contribution margin, which is the difference between sales revenue and variable costs. This contribution margin contributes towards covering fixed costs and generating profit. Marginal costing aids decision-making by providing insights into the profitability of products, pricing decisions, and the impact of production volume changes on profitability. It is particularly useful for short-term decision-making and cost-volume-profit analysis.