Concept of marginal costing practically apply

Question

The concept of marginal costing practically applied?

Answer 1

The concept of marginal costing is basically applied in the subsequent circumstances:

a) Estimation of Performance: The evaluation of the performance of different departments or products can be calculated with the assist of marginal costing that is deepened on contribution generating capacity.

b) Profit Planning: This method throughout the computation of P/V Ratio assists the management to plan the activities in such a manner that the profit can be maximized.

c) Fixation of Selling Price: The method of marginal costing aids the management to fix the price in such a manner so that prices fixed can cover up at least the variable cost.

d) Buy or Make decision: Marginal cost analysis assists the management in buying or making decision.

e) Optimizing Product Mix: To maximize profits and boost up sales volume it is compulsory to decide an optimized mix or proportion in those different products of a company can be sold.

f) Cost Control: Marginal Costing is a structure of cost presentation and cost categorization which allow the management to focuses on the controllable costs.

g) Flexible Budget preparation: As the marginal costing principally classifies costs as fixed and variable costs that enables the preparation of flexible budgets.