Advantages of Marginal Costing
(a) Marginal costing is easy to understand. It can be combined with standard costing and budgetary control and thereby make the control mechanism more effective.
(b) Elimination of fixed overhead from the cost of production prevents the effect of varying charges per unit, and also prevents the carrying forward of a portion of the fixed overheads of the current period to the subsequent period. As such cost and profit are not initiated and cost comparisons becomes more meaningful.
(c) The problem of over or under absorption of overheads is avoided.
(d) A clear-cut division of costs into fixed and variable elements makes the flexible budgetary control system more easy and effective and thereby facilitated greater particle cost control.
(e) If helps profit planning through break – even charts and profit graphs comparative profitability can easily be assessed and brought to the notice of the management for decision-making.
(f) It is an effective tool for determining efficient sales or production policies, or for taking pricing and tendering decisions, particularly when the business is at a low ebb.
Managerial Uses of Managerial Costing:
From the advantages stated above, the following may be listed as specific managerial uses:
(a) Cost Ascertainment: Marginal costing technique facilitates not only the recording of costs but their reporting also. The classification of costs into fixed and variable components makes the top of cost ascertainment more easy. The main problem in this regard is only segregation of the semi-variable cost into fixed and variable elements. However, this may be overcome by adopting any of the methods already explained for the purpose.
(b) Cost control: Marginal cost statements can be understood more easily by the management than those presented under absorption costing bifurcation of costs into fixed and variable enables management to exercise control over production cost and thereby effect efficiency. In fact, while variable costs are controllable at the lower levels of management, fixed costs can be controlled at the top level. Under this technique management can study the behaviour of costs at varying conditions of output and sales and thereby exercise better control over costs.
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