HIRE A WRITER!
Paper Types
Disciplines

Marginal Costing, Research Paper Example

Pages: 1

Words: 547

Research Paper

A marginal cost is the difference between that of Fixed and Variable cost.  As such relative to a given volume of output, then any additional output is normally obtained at a lesser value than proportionate cost because certain cost elements remain fixed whereas the remainder tend to rise in proportion to output. The inverse also applies in so far as a fall in output is often associated with a lower aggregate cost.  (Brown)

Marginal Cost = Variable Cost Direct Labour + Direct Materials + Direct Expense + Variable Overheads.  

The concept   The costing technique shows where one variable cost is charged to the cost unit produced and as such illustrates the changes in volume or type of output by the differentiation of fixed and variable cost.  This technique has also be referred to as ‘direct costing’.  Within the concept of marginal costing the fixed costs are never allocated or charged out against production. Once the calculation of marginal cost has been determined it is then possible to calculate the contribution i.e. the excess of revenue over that of marginal cost. (College Accounting Coach).

Advantages & Disadvantages   This costing technique is described as having the following advantages and disadvantages:

ADVANTAGES DISADVANTAGES
Easy concept to understand Limited use owing to historical data
Illustrates cost, price, volume relationship Ignores fixed costs to products
No under or over absorption Ignores concept that fixed costs may change to variable costs
No stock value distortions with current year fixed costs There is some over simplification involved
A useful aid to management decision making In reality should consider total costs not just the variable element
Separates Fixed & Variable costs – control! Potential of stock value being distorted by incorrect classification
Production & Sales policies are more visible The Tax Office may not accept ignoring Fixed Cost element

Nevertheless,  Marginal costing is widely used in the decision making of managers in manufacturing industry although you need to be aware of the limitations. (E.Harris). Marginal costing concepts lead to the ability to perform and calculate other ratios like the Profit Volume Ratio (P/V Ratio) (Reddy)

Characteristics  Marginal costing assists management by the provision of an analysis technique that facilitates managerial decision making. It considers all elements of a cost that are classified into fixed and variable components. The fixed costs will be charged to the Profit and Loss Account in the period that they are incurred. Stock and work-in-progress and that of finished goods are valued at marginal cost. The use of Break-Even analysis is an additional component of marginal costing. Marginal costs plays a key part in that of profit planning in an organization and contains techniques that are easy to understand and apply.

Marginal costing also helps when you are trying to determine ‘make or buy’ decisions for building a specific component. Hence the price being paid to outside suppliers can be compared to the marginal cost of producing the component in-house. Where this is deemed to be lower than the external price it will be cheaper to make the product in-house.

Works Cited

Brown, Glen. Marginal Costing and Absorption Costing. 2010. 17 3 2011 <http://www.globusz.com/ebooks/Costing/00000012.htm>.

College Accounting Coach. Marginal Costing : Features, Advantages and Disadvantages. 23 8 2006. 17 5 2011 <http://basiccollegeaccounting.com/marginal-costing-its-features-advantages-and-disadvantages/>.

E.Harris. Marginal Costing. London: Chartered Institute of Management Accountants, 1995.

Reddy, R.J. Cost Accounting & Controlsystems. New Delhi: APH Publisjing, 2004.

Time is precious

Time is precious

don’t waste it!

Get instant essay
writing help!
Get instant essay writing help!
Plagiarism-free guarantee

Plagiarism-free
guarantee

Privacy guarantee

Privacy
guarantee

Secure checkout

Secure
checkout

Money back guarantee

Money back
guarantee

Related Research Paper Samples & Examples

Dramatic Rhythm in Death of a Salesman, Research Paper Example

Arthur Miller’s play “Death of a Salesman” presents the underbelly of a seemingly typical family caught up in the American dream for success.  Dreams and [...]

Pages: 1

Words: 1981

Research Paper

United States Death Penalty, Research Paper Example

This paper examines the Criminal Justice perspective of the death penalty as it is applied across the United States.  It is split into three distinct [...]

Pages: 1

Words: 985

Research Paper

Nonprofit Localized Event Funding, Research Paper Example

Nonprofit organizations and events have several different ways in which they can be properly funded.  The challenge for non-profits is to effectively research and find [...]

Pages: 1

Words: 414

Research Paper

Policy Formulation, Research Paper Example

The American Health Care System:  Policy Formulation Introduction The field of policy research, which incorporates policy formulation, has a long history in the United States [...]

Pages: 1

Words: 1222

Research Paper

Goddesses in World Religions, Research Paper Example

Of central importance to the Hindu faith is the goddess Kali. The goddess occupies a pivotal role in the Hindu pantheon of Gods in two [...]

Pages: 1

Words: 2358

Research Paper

Drug Trafficking In the United States, Research Paper Example

Drug trafficking involve illegal production and distribution of illicit drugs such as cocaine, marijuana, Heroine, Methamphetamine, Hunitrazepam, Gammahydroxytyrate (GHB), steroids among others.  Today, drug trafficking [...]

Pages: 1

Words: 1088

Research Paper

Dramatic Rhythm in Death of a Salesman, Research Paper Example

Arthur Miller’s play “Death of a Salesman” presents the underbelly of a seemingly typical family caught up in the American dream for success.  Dreams and [...]

Pages: 1

Words: 1981

Research Paper

United States Death Penalty, Research Paper Example

This paper examines the Criminal Justice perspective of the death penalty as it is applied across the United States.  It is split into three distinct [...]

Pages: 1

Words: 985

Research Paper

Nonprofit Localized Event Funding, Research Paper Example

Nonprofit organizations and events have several different ways in which they can be properly funded.  The challenge for non-profits is to effectively research and find [...]

Pages: 1

Words: 414

Research Paper

Policy Formulation, Research Paper Example

The American Health Care System:  Policy Formulation Introduction The field of policy research, which incorporates policy formulation, has a long history in the United States [...]

Pages: 1

Words: 1222

Research Paper

Goddesses in World Religions, Research Paper Example

Of central importance to the Hindu faith is the goddess Kali. The goddess occupies a pivotal role in the Hindu pantheon of Gods in two [...]

Pages: 1

Words: 2358

Research Paper

Drug Trafficking In the United States, Research Paper Example

Drug trafficking involve illegal production and distribution of illicit drugs such as cocaine, marijuana, Heroine, Methamphetamine, Hunitrazepam, Gammahydroxytyrate (GHB), steroids among others.  Today, drug trafficking [...]

Pages: 1

Words: 1088

Research Paper