Marginal Costing and Pricing
Determining the price of products manufactured by a company is often considered to be a difficult problem. However, the basic problem involved in pricing is the matching of demand and supply. Marginal costing is something used to determine prices, a simple and familiar example being the railway ticket. The normal fare will usually be more than the charge collected for excursion fare (concessional fare) for, the normal fare is calculated to cover all the railway costs, including fixed overheads which are a considerable item, whereas the excursion fare will probably cover only the marginal cost (which is relatively small) and some contribution towards profit. The marginal costing technique can help management in fixing price in such special circumstances as:
(a) A trade depression in the industry.
(b) Spare capacity in the factory
(c) A seasonal fluctuation in demand.
(d) When it is desired to obtain a special contract.
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