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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
INTRODUCTION TO MARGINAL COSTING
Marginal costing is a costing technique in which only variable
manufacturing costs are considered and used while valuing inventories and determining
costs of goods sold. That is, only variable manufacturing costs are considered as product
costs and are allocated to products manufactured. These costs include direct materials,
direct labour and variable factory overhead. Fixed factory (manufacturing) overheads are
not considered product costs and are not used to value inventories and determine the
cost of goods sold and are excluded from the cost of product. Fixed manufacturing costs
are treated as period costs in variable costing i.e. costs which are a function of time
rather than of production. These fixed manufacturing costs are necessary to provide only
facilities and are the costs of maintaining a readiness to produce or service to which they
relate. These costs are not affected by changes in the quantity of product manufactured
and therefore are considered an expense of the period and written off to profit and loss
account in the period they are incurred. Some examples of fixed manufacturing overhead
are plant depreciation, supervisor’s salaries, property taxes, insurance, etc
It is a costing technique where only variable cost or direct cost will be charged to the
cost unit produced.
Marginal costing also shows the effect on profit of changes in volume/type of output by
differentiating between fixed and variable costs.
Salient Points:
Marginal costing involves ascertaining marginal costs. Since marginal
costs are direct cost, this costing technique is also known as direct costing
In marginal costing, fixed costs are never charged to production. They are
treated as period charge and is written off to the profit and loss account in the
period incurred
Once marginal cost is ascertained contribution can be computed.
Contribution is the excess of revenue over marginal costs.
The marginal cost statement is the basic document/format to capture the
marginal costs.
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
ADVANTAGES OF MARGINAL COSTING
It is simple to understand re: variable versus fixed cost concept
A useful short term survival costing technique particularly in very competitive
environment or recessions where orders are accepted as long as it covers the
marginal cost of the business and the excess over the marginal cost contributes
toward fixed costs so that losses are kept to a minimum
Its shows the relationship between cost, price and volume
Under or over absorption do not arise in marginal costing
Stock valuations are not distorted with present years fixed cost
Its provide better information hence is a useful managerial decision
making tool
It concentrates on the controllable aspects of business by separating
fixed and variable costs
The effect of production and sales policies is more clearly seen and understood.
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
DISADVANTAGES OF MARGINAL COSTING
Marginal cost has its limitation since it makes use of historical data while
decisions by management relates to future events
It ignores fixed costs to products as if they are not important to production
Stock valuation under this type of costing is not accepted by the Inland
Revenue as it is ignore the fixed cost element
It fails to recognize that in the long run, fixed costs may become variable
Its oversimplified costs into fixed and variable as if it is so simply to
demarcate them
It is not a good costing technique in the long run for pricing decision as it
ignores fixed cost. In the long run, management must consider the total
costs not only the variable portion
Difficulty to classify properly variable and fixed cost perfectly, hence stock
valuation can be distorted if fixed cost is classified as variable.
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
MARGINAL COSTING AND CONTRIBUTION MARGIN
Contribution can be considered and determined from two angles:
First, contribution is determined with the objective of income
measurement and from the standpoint of what costs are to be considered product costs
and thus included in inventory, and what costs are to be considered period costs and
treated simply as expenses of the period. The marginal costing follows this format of
determining contribution. Accordingly, under marginal costing, contribution is obtained
after deducting variable production costs, which are treated product costs from sales.
Subsequently, from this contribution marginal product costs which are treated as period
costs are deducted to finally find out the net income. This format of determining
contribution is useful to management when it is concerned with cost-volume
relationship from production activities only. Since management is considering only the
production area under variable costing, non-manufacturing marginal costs (variable
selling and administrative costs) are excluded while determining contribution. Such
contribution can be better referred to as manufacturing margin or contribution margin
from production.
Second, contribution can be determined from the view point of a firm’s
total cost volume profit relationship or total operations. A broader view of contribution
determination is taken and here the contribution margin is the amount remaining after
deducting all marginal costs, both production and selling, from sales. This contribution
margin should cover fixed costs and provide a satisfactory profit. When management is
concerned with cost-volume profit relationship for the entire firm, the variable non-
production costs become relevant, as well as the variable production costs. Such a
contribution margin can be referred to as contribution margin from total operations.
Generally, the use of the term contribution margin refers to contribution margin from
total operations.
The contribution margin from total operations is used in calculating the
break even point. The marginal costing approach (contribution margin from production
approach) is useful in making incremental production decisions. The contribution
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
margin approach (total contribution margin from total operations approach) is useful in
making both incremental production and incremental selling decisions, in addition to its
value in the study of cost-volume profit relationships for the firm as whole.
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
ANALYSIS OF MARGINAL COSTING
With variable (or marginal cost) pricing, a price is set in relation to the
variable costs of production (i.e. ignoring fixed costs and overheads).
The objective is to achieve a desired “contribution” towards fixed costs
and profit.
Contribution per unit can be defined as: SELLING PRICE less VARIABLE COSTS
Total contribution can be calculated as follows:
Profit = Total Contribution less Total Fixed Costs
The break even level of sales can be calculated using this information as follows:
Break even volume = Total Fixed Costs / Contribution per Unit
Consider a business with the following costs and volumes for a single product. It is
shown in the below table:
Fixed costs:Factory production costs 750,000Research and development 250,000Fixed selling costs 550,000Administration and other overheads 325,000Total fixed costs 1,625,000Variable costsVariable cost per unit 8.00Mark-UpMark-up % required 35% Budgeted sale volumes (units) 500,000
Prices are set using variable costing by determining a target contribution per unit. This
reflects:
Variable costs per unit
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
Total fixed costs
The desired level of target profit (i.e. contribution less fixed costs)
The variable / marginal costing method can be illustrated using the same data used
further above:
• Assume that the selling price per unit is Rs.12
Variable costs per unit are Rs.8
CONTRIBUTION = SELLING PRICE – VARIABLE COST
= 12 -- 8
= 4
What is the break even volume for the business?
Total fixed costs are Rs.16, 25,000
To achieve break-even, therefore, the business needs to sell at least 4,06,250 units
(each of which produces a contribution of Rs.4 i.e.16, 25,000 / 4)
Looked at another way, what would be the required sales volume to generate a profit
of Rs.2, 50,000?
• Total contribution required = Total fixed costs + required profit
• Total contribution = Rs.1, 625,000 + Rs.2, 50,000 = Rs.1, 875,000
• Contribution per unit = Rs.4
• Sales volume required therefore = 468,750 (1,875,000 / 4)
The advantages of using a variable/marginal costing method for pricing include the
following:
• Good for short-term decision-making
• Avoids having to make an arbitrary allocation of fixed costs and overheads
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
• Focuses the business on what is required to achieve break-even
However, there are some potential disadvantages of using this method:
• There is a risk that the price set will not recover total fixed costs in the long term.
Ultimately businesses must price their products that reflect the total costs of the
business
• It may be difficult to raise prices if the contribution per unit is set too low
THEREFORE, FROM THE ABOVE WE DERIVED FOLLOWING BASIC
CONCEPTS:
1. Profit = Sales – Total Cost
2. Contribution = Sales – Variable cost
OR
Contribution = Fixed cost + Profit
3. Profit Volume ratio = Contribution / sales * 100
4. Break Even Point
In terms of quantity: Fixed cost / Contribution per unit
In terms of amount: Fixed cost / PV Ratio
5. Margin of safety
There are sales beyond break-even point. A business will like to
have a high margin of safety because this is the amount of sales which generates
profits. A high margin of safety indicates that the break-even point is much below the
actual sales and even if there is reduction in sales, business will be still in profits.
Margin of safety is expressed as-
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Margin of safety = Sales -- Break Even
Sales
MARGINAL COSTING & ITS APPLICATION IN BUSINESS
IMPORTANCE OF BREAK EVEN ANALYSIS
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EXHIBIT: 1
Jo and Mo are friends who think they have hit on a sound business idea.
They have noticed the need for expert DJs in clubs, and believe that there is
a market to teach people Disc Jockey skills. They plan to provide courses,
calling the business the JoMo School for DJs. They have hired a local club,
sound equipment and experts to demonstrate DJ techniques. There are still
a few issues that concern them.
Mo explains:
We’ve researched the competition, and have a good idea of what we can
charge for coming on the course. We have also estimated what it will all
cost. What we need are some costing techniques so that we can answer
some important questions, for example:
• How many people do we need to take on our course in order to break-
even?
• How much profit would we make if more or less than that number signed
up?
• What would happen if we charged more, or less, or if we revised our
costs?
• What is the most we could make, or lose?’
MARGINAL COSTING & ITS APPLICATION IN BUSINESS
COST BEHAVIOUR AND MARGINAL COSTING
It is important to understand that costs behave in different ways
as the volume of activity changes. This is fundamental to marginal costing.
There are three ways that the costs could behave within a range of activity levels:
Variable costs
These are the costs where the cost varies in proportion to the activity level. For
example, if a car manufacturer makes more cars it will use more sheet metal - a
variable cost. Variable costs are also known as marginal costs.
Fixed costs
These are costs that do not normally change when the level of activity changes. The
cost of insuring a car factory against business risks will not vary in line with the
number of cars produced – it is a fixed cost.
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
Semi-variable costs
These are costs where a part of the cost acts as a variable cost,
and a part acts as a fixed cost. Some fuel bills are semi-variable: there is a fixed
‘standing charge’ and a variable ‘unit charge’.
Costs, contribution and profit
In marginal costing all costs need to be classified as variable
costs or fixed costs. As part of this exercise, semi-variable costs are divided into their
fixed and variable components. For example, a car manufacturer will need to
identify:
■ The variable costs of each car
■ the total fixed costs of a manufacturing business over a period of time
When the manufacturer sells a car it will receive the selling price, which it will use to
cover the variable costs of the car. As the selling price is greater
than the variable cost there will also be money available to pay off the fixed
costs incurred. This amount is known as the contribution. The formula is:
Contribution = selling price per unit -- variable cost per unit
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
It follows that the difference between the sales income and the variable costs of
the units sold in a period is the total contribution that the sales of all the units in the
period make towards the fixed costs of the organization.
A business can work out its profit for any given period from the fixed costs and total
contribution figures:
Profit = Total contribution -- Total fixed
costs
A marginal costing statement can be prepared using the following format:
Sales
Less: Variable costs
Equals Contribution
Less: Fixed costs
Equals Profit
The break-even point for a business is the output level (units
manufactured or services provided) at which the income from sales is just enough to
cover all the costs. Break-even is the point at which the profit (or loss) is zero. The
output level can be measured in a way that is appropriate for the particular business. It
is commonly measured in sales units. The formula for break-even in sales units is:
Break-even point (in sales units) = Fixed costs
Contribution per unit
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
13
The Jo Mo School for DJs Case Study shows how this formula is used to
calculate a break-even point.
Jo Mo School for DJs - Break even
Jo and Mo are planning to run a one-day introductory course to teach
participants the basic techniques of being a DJ. All students will be charged a fee
of 125 to include refreshments, lunch and all materials. The maximum number of
students that can be comfortably accommodated on the course is 20. The
estimated costs of running the course are as follows:
Hire of club 150
Lunches 10 per student
Advertising 300
Equipment hires 100
Refreshments 5 per student
Fees for DJs 400
Student materials 10 per student
Insurance 50
Required
Calculate the break-even point in terms of the number of students signed up for a
DJ course.
Solution
The first thing to do is to divide the estimated costs into fixed and variable costs.
Fixed costs will be incurred regardless of the number of participants on the
course (up to the course capacity), while variable costs change in proportion to
the number of students. This gives us the following analysis, with totals:
MARGINAL COSTING & ITS APPLICATION IN BUSINESS
FIXED COSTS FOR
THE COURSE
VARIABLE COSTS
PER UNIT
HIRE OF CLUB 150
LUNCHES 10
ADVERTISING 300
EQUIPMENT HIRE 100
REFRESHMENTS 5
FEES FOR DJs 400
STUDENT MATERIALS 10
INSURANCE 50
TOTAL 1000 25Break-even point (in sales units)
Fixed Costs 1000 = 10 students
USING BREAK-EVEN CHARTS
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Since Jo and Mo will be charging each student 125 for the course, the
‘contribution’ that each student makes is:
Selling price 125 per student
Less variable cost 25 per student
= contribution 100 per student.
Because the variable costs for the student have been taken into
account, this ‘contribution’ is towards covering the fixed costs, and ultimately
making a profit.
The break-even formula now makes sense - it is simply saying ‘How
many students’ contributions of 100 each will it take to cover the fixed costs?’
The fixed costs are 1000, and therefore will be covered by 10 students’
contributions.
Using the formula, this calculation is carried out as follows:
Contribution per unit 100
We can see that if Jo and Mo enroll 10 students for a DJ course they will achieve
break-even. Since they can accommodate up to 20 students, any number of
students between 11 and 20 will generate a profit.
MARGINAL COSTING & ITS APPLICATION IN BUSINESS
Break-even calculations can also be demonstrated using a break-even chart. The
chart at the top of the next page is based on the calculations from the Case Study.
The chart makes the same assumption that costs within the range is either fixed or
variable, and therefore uses straight lines to show how costs behave. Any semi-
variable costs would be divided into their fixed and variable parts. Notice the similarity
between the way that costs are shown on this chart, and the earlier individual cost
behaviour diagrams. The chart which follows is constructed as follows:
■ The scales on the graph are chosen so that the horizontal axis measures
output from 0 to 20 students, and the vertical axis represents the income
and costs at those levels. This means that the maximum that the vertical axis
will need to reach will be (20 x 125) = 2,500.
■ The fixed cost line is a horizontal line at the 1,000 level. It is horizontal
since the fixed cost will remain the same no matter how many students
enroll.
■ The total cost line starts at the 1,000 point based on zero students. This is because
if the course goes ahead with no students the fixed costs will still have to be paid. The
line is drawn to a point of 1,500, situated at the 20 student’s level. This is based on
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
a total cost of 1,500, ie fixed cost 1,000 plus variable costs of 500 (20 x 25) for 20
students.
■ The income line is drawn from zero income (zero students), to the income of
2,500 that would be generated from 20 enrolments.
What we now find is that:
■ The break-even point of 10 students is represented on the graph where
the total cost line crosses the income line
■ Student numbers to the left of this point will result in losses since the
income line is below the total cost line
■ Student numbers exceeding 10 will result in profit, since in the part of the
graph to the right of the break-even point the income line is higher than
the total cost line
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
PRICING DECISIONS
The question of what to charge customers is a complicated one, and depends on
issues like:
■ what competitors are charging
■ the costs levels of the business
■ the level of sales the business can expect
■ what the business thinks its customers will be prepared to pay
One area in which marginal costing can help is in determining an absolute minimum
price that could be charged. This can be particularly useful for pricing additional sales
at a special reduced rate when sales have already been made at the normal selling
price.
The rule is simple - you assume fixed costs have already been paid off and so all you
have got to do is to cover the variable costs of any additional sales. If further sales are
made at a price that is above the variable costs of each unit then that ‘contribution’
(i.e. sales price minus variable costs) will all be profit.
We will now see how this applies to the JoMo School for DJs.
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
EXHIBIT: 2
Jo Mo School for DJs - minimum pricing decisions
The introductory course for DJs looks like being a success. The original costs and
prices were agreed on as follows:
Selling Price 125 per student
Variable costs 25 per student
Fixed costs 1,000 for the course
Twelve students have signed up and paid their fees, and the course is to run in a few
days time.
At this point Mo gets a telephone call from a local activity holiday centre. They would
like to book places for eight students who are interested in making the course a part of
their holiday. The problem is that the holiday centre is on a tight budget; they are only
prepared to pay 80 per student, and if that price is not acceptable they will send their
holidaymakers go-karting instead.
Required
Calculate whether by accepting these terms for the additional 8 students Mo and Jo
will increase their overall profit, and if so by how much. List other factors that they may
like to consider before making a final decision.
Solution
The introductory course currently has the capacity (just) to take the extra eight
students, without changing the existing fixed costs.
The additional income would be 8 x special price of 80 = 640
The additional costs incurred would be 8 x variable costs of 25 = 200
Therefore additional contribution would be made of 440
Since fixed costs are unchanged this 440 will all represent additional profit.
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
Other factors to be considered by Jo and Mo include:
■ Whether there may be last-minute demand from customers willing to pay the usual
price. If they go ahead with the above proposal they would have to turn these
customers (and their higher contributions) away.
■ Whether the activity holiday centre would expect similar deals for any courses run in
the future. While this could be a welcome source of additional students, it should not
form a substitute for students paying the normal rate.
■ Whether the students paying the normal rate may become aware of the cheap deal
offered to the activity holiday centre, and demand a similar price. This seems
unlikely in this case.
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
MARGINAL COSTING AND RECORDED PROFIT
We have seen marginal costing can be useful to organizations because it
focuses on the way that costs behave. This means that techniques like break-even and
‘what-if’ analysis can be carried out to help plan and monitor costs and make
decisions. The choice of costing system that an organization uses will, however, have
implications not only for the way that its profit statements are laid out, but also for the
amount of profit that is recorded.
One of the reasons that organizations use a costing system is so that the value
of the stock of finished goods (and work in progress) can be calculated and
incorporated into profit statements. Since the different approaches to costing
that we have examined give different costs per unit, they will result in
different valuations of stock. This will in turn affect the profit calculation
when stock levels change. A marginal costing system will value stock at just
the variable costs, but a system that absorbs fixed costs into the stock
valuation can result in fixed costs being charged to a period other than the one
in which they were incurred.
The effect of stock valuation on profit
The costs incurred in producing goods in a given period plus the cost of
the opening stock at the beginning of that period equals the cost of sales for that
period plus the cost of the closing stock. This can be seen as follows:
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
INCOME STATEMENT PROFORMA OF MARGINAL COSTING
Variable costs have important role because these are the areas
where business can incur costs but these costs are not fixed in nature. They fluctuate
according to demand of material and labour. Income statement indicates this marginal
costing and show related effect.
SALES XX
LESS: VARIABLE COSTS
DIRECT MATERIAL COST XX
DIRECT LABOUR COST XX
VARIABLE MANUFACTURING OVERHEAD
COSTS OF GOODS MANUFACTURED XX
ADD: BEGINNING INVENTORY XX
COST OF GOODS AVAILABLE FOR SALE XX
LESS: CLOSING INVENTORY XX
COST OF GOODS SOLD XX
MARGINAL CONTRIBUTION XXX
LESS: FIXED MANUFACTURING OVERHEAD XX
VARIABLE SELLING AND MANUFACTURING
EXPENSES XX
FIXED SELLING AND ADMINISTRATIVE
EXPENSES XX XXX
NET INCOME XXX
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
PRACTICAL APPLICATION OF MARGINAL COSTING IN BUSINESS
The technique of marginal costing can be profitably employed in the
following situations:
1. EVALUATION OF PERFORMANCE
The performance of various segments of a business, say a
department or a product or a branch and so on, can be evaluated with the help of
marginal costing and the evaluation of performance will be based upon the
contribution generating capacity of these segments. If the fixed costs are apportioned
over these segments on any basis whatsoever, it will be ignored while evaluating the
performance.
2. PROFIT PLANNING
Marginal costing, through the calculations of PV ratio enables the
management to plan the activities in such a way that the profits can be maximized or to
maintain a specific level of profit. As such, this technique helps the planning of profits.
3. FIXATION OF SELLING PRICE
The technique of marginal costing may be applied in the area of
price fixation in such a way that prices fixed should cover at least the variable cost. As
in the short run, the fixed cost is a stagnant cost; it can be ignored, though it cannot be
ignored in the long run because of a simple fact that it is a cost. In the short run, the
prices fixed above the marginal cost may generate some positive contribution which
may help in the recovery of fixed cost. However, if the fixed cost is ignored in the long
run, it may put the business into serious troubles as the business will never be able to
earn the profits.
In this connection, following propositions should be kept in mind-
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
In some exceptional circumstances i.e. during the phase of depression, serious
competition in the market, to introduce the new product in the market by keeping the
price as low as possible in the initial stages, to dispose off the product which may
deteriorate in quality etc; it may be necessary to fix the selling price even below the
marginal cost, however it is the deliberate decision taken by the management.
The above principle is equally applicable while fixing the export price as well. The
export price over and above the marginal cost will result into increased number of profits
if the fixed costs can be taken care of by the inland sales and if the home market is not
likely to get affected by the export price fixed. However, if certain specific costs, either
fixed or variable are required to be incurred specifically for the execution of the export
order, they will have to be recovered while fixing the export price as if it is a part of the
marginal cost.
4. MAKE OR BUY DECISION
If the management is facing a problem to decide whether a product should
be manufactured in house or to purchase from outside source, the technique of marginal costing
may render useful assistance. For example – the following cost data is made available in respect
of two components A and B.
COMPONENT A
(RS. PER UNIT)
COMPONENT B
(RS. PER UNIT)IF MANUFACTUREDVARIABLE COST 30 30FIXED COST 25 20 TOTAL 55 50IF PURCHASED 40 25
If the above data is viewed from total cost point of view, it may be
concluded that the purchase proposition may be profitable for both components A and
B. However, the conclusion may be misleading as the total cost in Component A, if
purchased, is not going to be Rs. 40 per unit, but it is going to be Rs. 65 (i.e. Rs. 40
purchase price per unit plus Rs. 25 fixed cost per unit) which being more than present
total cost, manufacturing proposition will be beneficial. On the other hand, in case of
Component B, total cost, if purchased is going to be Rs. 45 per unit (Rs. 25 purchase
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
price per unit plus Rs. 20 fixed cost per unit) which being less than the present total
cost, buying proposition will be beneficial.
The above conclusions may be simplified in the following way-
Following points needs to be considered:
a. If buying proposition is beneficial, the final decision to buy may depend on other
factors also viz. whether the supplier is reliable, whether the supply can assure
required quality and uninterrupted supply, etc.
b. If it is decided to buy a component that was manufactured till now, the
manufacturing capacity released should be profitably used for some other
purposes. If it is decided to manufacture a component which was being
purchased till now, there may be two possibilities. One, production capacity used
for same component or product may be diverted to manufacture another
component. In this case, the loss of contribution of that another product should
be considered as a part of cost. Second, if additional production facilities are
required to be acquired for the manufacturing proposition, the additional fixed
costs attached with the manufacturing proposition should be considered.
5. OPTIMISING PRODUCT MIX
Product mix refers to the proportion in which various products of a
company can be sold. If a concern is dealing in a number of products, a problem which
usually arises is to decide a proportion in which the sales of the products should be
made so that profits can be maximized. Such a problem can be solved by studying the
contributions generated by various products individually and by selecting that mix which
generates the maximum total contribution.
6. COST CONTROL
If Purchase price < Variable cost, go in for purchase proposition
If Purchase price > Variable cost, go in for manufacturing proposition
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
Marginal costing is a technique of cost classification and cost
presentation. The segregation of total costs as fixed costs and variable costs itself
facilitates the cost control. Variable costs are controllable costs at the lower level of
management whereas fixed costs can be controlled only on the top level of
management, that too, to a limited extent only. At the same time, the fixed costs are not
completely ignored. The only thing is that they are collected and reported separately as
an amount deducted from contribution. As such, the fixed costs can be controlled as
they can be programmed and estimated in advance.
7. FLEXIBLE BUDGET PREPARATION
Marginal costing and more particularly the classification of fixed
costs and variable costs facilitate the preparation of flexible budgets as ‘Budgetary
Control’.
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MARGINAL COSTING & ITS APPLICATION IN BUSINESS
CONCLUSION
It can be concluded that marginal cost is an ingredient of fixed cost
through which actual analysis of actual income statement can be done.
It is very crucial to determine the profitability of the on-going business on
the basis of per year as it is fluctuates every year.
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