advantages and disadvantages of marginal costing pdf

Advantages and disadvantages of marginal costing pdf

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Advantages And Disadvantages Of Marginal Costing

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Cost Control: Practical cost control is greatly facilitated. By avoiding arbitrary allocation of fixed overhead, efforts can be concentrated on maintaining a uniform and consistent marginal cost useful to the various levels of management. Simplicity: Marginal Costing is simple to understand and operate; it can be combined with other forms of costing, such as, budgetary costing, standard costing without much difficulty. Elimination of varying charge per unit: In marginal Costing fixed overheads are not charged to the cost of production due to this the effect of varying charges per unit is avoided. Short-Term Profit Planning: It helps in short-term profit planning by breakeven charts and profit graphs.

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Viberg boot factory, Victoria BC. Marginal costing can help decide what to manufacture, where to manufacture it, and which customers to target: especially when making short-term decisions. Marginal costing is a method of cost accounting and decision-making used for internal reporting in which only marginal costs are charged to cost units and fixed costs are treated as a lump sum. It is also known as direct, variable, and contribution costing. In marginal costing, only variable costs are used to make decisions.

The advantages, merits of marginal costing are briefly explained below. Image: Advantages and Disadvantages of Marginal Costing. The marginal costing technique is very simple to understand and easy to operate. The reason is that the fixed costs are not included in the cost of production and there is no arbitrary apportionment of fixed costs. The current year fixed costs is not carried forward to the next year. As such, cost and profit are not vitiated.

Advantages And Disadvantages Of Marginal Costing

Marginal costing is the ascertainment of marginal costs and of the effect of changes in volume or type of output by differentiating between fixed costs and variable costs. Marginal costing is not a method of costing such as job costing, process costing and operating costing, etc. It brings out the relationship between the cost, volume of output and profit. Other terms in use are Direct costing which is used in U. Marginal cost is defined as the amount at any given volume of output by which aggregate costs are changed, if the volume of output is increased or decreased by one unit.

Advantages of Marginal Costing. The reason is that the fixed costs are not included in the cost of production and there is no arbitrary apportionment of fixed costs. The current year fixed costs is not carried forward to the next year. As such, cost and profit are not vitiated. Cost comparisons become meaningful. The contribution is used as a tool in managerial decision-making. Marginal costing shows more clearly the impact on profit of fluctuations in the volume of sales.


1. The marginal costing technique is very simple to understand and easy to operate. The reason is that the fixed costs are not included in the cost of production and.


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Marginal costing refers to the method of costing which is concerned with changes in costs resulting from changes in the volume or range of output and sales. Increase or decrease in total costs which are brought about by an increase or decrease in the volume of production and sale is known as marginal cost or differential cost or incremental cost. Thus, marginal costs relate to future costs and can be determined by subtracting the total at one level of output or sale from that at another level. It should be noted that marginal costs refer to the increase or decrease in costs on account of block of units produced or sold.

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5 comments

  • AbdГ­as P. 26.04.2021 at 15:11

    By avoiding arbitrary allocation of fixed overhead, efforts can be concentrated on maintaining a uniform and consistent marginal cost useful to the various levels of management.

    Reply
  • Heather C. 28.04.2021 at 21:04

    Helpful in Cost Control: Marginal costing divides total cost into fixed and variable cost.

    Reply
  • Antonio H. 01.05.2021 at 13:28

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  • Troy A. 02.05.2021 at 22:51

    A company's pricing strategy is never permanent.

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  • Alcuino S. 03.05.2021 at 23:12

    Advantages: 1. Constant in nature – Variable costs fluctuates from time to time, but in the long run, marginal costs are stable. Marginal.

    Reply

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