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Top 10 facts about the world. Marginal cost and total cost are related in terms of the cost of production for manufacturing companies or service providers. Fixed costs and marginal variation in cost are both considered when determining the total cost, so total costs encompass marginal costs. The average total cost will generally decrease to a minimum before increasing, forming a U-shape.
Marginal Costing Definition: Marginal Costing is a costing method that includes only variable manufacturing costsâdirect materials, direct labor, and variable manufacturing overheadâin unit product cost. Marginal costing is also called variable costing and direct costing.Marginal cost of the product = Direct materials cost + Direct labor cost + Variable manufacturing overhead cost. Marginal Cost Method (Function and pricing).1  Increase or decrease in total cost of production. 2  Fixed costs cant be changed so only variable costs are Accounted.3  In companies where average costs are consistent.arginal costing is also called variable costing and direct costing. Marginal cost of the product = Direct materials cost + Direct labor cost + Variable manufacturing overhead cost. Marginal Cost Method (Function and pricing).