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.