How Is The Concept Of Marginal Costing Practically Applied?

1.	How Is The Concept Of Marginal Costing Practically Applied?
Answer» The concept of marginal COSTING is practically applied in the following situations: Evaluation of Performance : The evaluation of the performance of VARIOUS departments or products can be evaluated with the help of marginal costing which is based on contribution generating capacity. Profit Planning : This technique through the calculation of P/V Ratio helps the management to plan the activities in such a way that the profit can be maximised. Fixation of Selling Price : The technique of marginal costing assists the management to fix the price in such a way so that prices fixed can cover at least the variable cost. Make or Buy decision : Marginal cost analysis helps the management in MAKING or buying decision. Optimizing Product MIX : To maximise profits and increase sales volume it is necessary to decide an optimized mix or proportion in which various products of a company can be sold. Cost Control: Marginal Costing is a technique of cost classification and cost presentation which enable the management to concentrate on the controllable COSTS. Flexible Budget preparation: As the marginal costing particularly classifies costs as fixed and variable costs which facilitates the preparation of flexible budgets. The concept of marginal costing is practically applied in the following situations:

Answer»

The concept of marginal COSTING is practically applied in the following situations:

Evaluation of Performance : The evaluation of the performance of VARIOUS departments or products can be evaluated with the help of marginal costing which is based on contribution generating capacity.
Profit Planning : This technique through the calculation of P/V Ratio helps the management to plan the activities in such a way that the profit can be maximised.
Fixation of Selling Price : The technique of marginal costing assists the management to fix the price in such a way so that prices fixed can cover at least the variable cost.
Make or Buy decision : Marginal cost analysis helps the management in MAKING or buying decision.
Optimizing Product MIX : To maximise profits and increase sales volume it is necessary to decide an optimized mix or proportion in which various products of a company can be sold.
Cost Control: Marginal Costing is a technique of cost classification and cost presentation which enable the management to concentrate on the controllable COSTS.
Flexible Budget preparation: As the marginal costing particularly classifies costs as fixed and variable costs which facilitates the preparation of flexible budgets.

The concept of marginal costing is practically applied in the following situations:

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