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Marginal Costing is one of the important topics studied under economics. The cost of one additional unit of output is referred to as marginal cost. The definition of marginal costing is the combination of the definitions of fixed costs and variable costs. Thus, marginal costing is the technique by which we can verify the effect and differentiate between variable and fixed costs. Here, costs are classified into variable and fixed costs and this technique is based on the behaviour of these costs with volume of output. It is mentioned in Marginal Costing Assignment Help that marginal cost is the sum of direct labour, direct material, variable overheads and direct expenses. It is completely different from other costing methods like- batch costing, contract costing and process costing. Marginal costing is a special technique of costing used by the management for the purpose of decision making. Marginal Costing Assignment Help tells us more about costs related to marginal costing.
Advantages and Disadvantages of Marginal Costing
Advantages of marginal costing are highlighted and discussed in Marginal Costing Assignment Help. Some of them are given below
• Marginal costing is a simple concept and is easy to understand. For better performance and functioning it can be combined with standard costing and budgetary control.
• Some decision making problems like product mix, pricing of products, profit planning and making or buying decisions can be solved by the application of marginal costing.
• It is an effective tool to determine efficient production policies and take crucial decisions, especially when the business is at a low point.
• It helps the management to avoid the problem of over or under absorption of overheads. To know more about marginal costing and its advantages, please refer Marginal Costing Assignment Help.
• This technique is used to record and report both variable and fixed costs.
• Marginal costing is constant in nature.
• It simplifies the method of stock valuation thereby providing accurate profit calculation results.
Along with many advantages, marginal costing has some disadvantages also. The disadvantages of marginal costing discussed in Marginal Costing Assignment Help are given below
• Time factor which is a significant factor is totally neglected in marginal costing. As it takes only the contribution of the product, the time aspect is totally ignored.
• The procedure of valuation of inventories is another disadvantage of marginal costing. It includes finished goods, work-in-progress and other procedure like transfer from one step to another, etc.
• It is difficult to separate fixed and variable elements of overhead costs. And this should be done with proper care in order to get accurate marginal costing.
• Marginal costs are not recognized by the income-tax authorities at the time of inventory valuation. To know more about marginal costing and its limitations, please refer Marginal Costing Assignment Help.
• The marginal costs are not good for long-run continuity of the business.
• Marginal costing is quite difficult to be combined with other techniques like budgetary control and standard costing and hence it does not explain the reason for the change (increase or decrease) in production.
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