Explain circumstances under which marginal costing techniques are used

Management Accounting Block Revision Mock Exams

Marginal costing is used when:
 Costing special one – off contracts/jobs in which case the job/contract will
not very much affect the day to day operations of a business.
When making a make or buy decision marginal costing will be good since whichever
decision is taken, what matters is contribution towards fixed cost.
When a business has a factor limiting production level marginal costing will assist in highlighting the contribution per unit of the limiting factor.
Marginal costing is used in the calculation of the breakeven point. This is the point where profits = zero and guides a business in organising its business production.

 In order to choose between two competing alternatives marginal costing method is the best.

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