Marginal-costing technique is useful for
All of the above
Marginal costing separates costs into variable and fixed, charges only variable cost to products, and treats contribution (sales minus variable cost) as the fund for fixed costs and profit.
Make or buy: a component is bought from outside only if the purchase price is below the marginal (variable plus avoidable) cost of making it.
Profit planning: contribution, P/V ratio, break-even point and margin of safety show the sales needed for a target profit.
Shut-down: in the short run a unit should keep operating as long as price covers variable cost and makes some contribution to the fixed costs that would be incurred even after closure.
Since the technique helps in each of these decisions, all three uses apply.
Hence, All of the above.
Important Questions from Marginal Costing
- Which one of the following is not correct ?
From the following information, find out the number of units that must be sold by the firm to earn profit of ₹ 80,000 per year.
Sales price : ₹ 25 per unit
Variable manufacturing costs – ₹ 12 per unit
Variable selling costs – ₹ 3 per unit
Fixed factory overheads – ₹ 5,00,000
Fixed selling costs – ₹ 3,00,000
The Break Even point expressed in amount of sales in rupees of X Ltd having selling Price of ₹ 20 per unit, variable cost of ₹ 14 per unit and fixed cost of ₹ 7,92,000 is:
