ADVANTAGES OF

PRESENTED BY
SILPA.P.S
MBA/110/18
MARGINAL COSTING

Marginal Costing is a costing

technique wherein the marginal
cost, i.e. variable cost is charged to
units of cost, while the fixed cost for
the period is completely written off
against the contribution.
 ADVANTAGE
 S
The marginal costing technique is very simple
to understand and easy to operate. The reason
is that the fixed costs are not included in the
cost of production and there is no arbitrary
apportionment of fixed cost.

 The contribution is used as a tool in managerial

decision-making. It provides a more reliable
measure for decision-making.

 Marginal costing shows more clearly the impact

on profit of fluctuations in the volume of sales.
 Under absorption and over absorption of
overheads problems are not arisen under
marginal costing.

 The marginal costing technique can be

combined with standard costing.

 The prevailing relationship between cost,

selling price and volume are properly
explained in clear terms.

 The management can take short run

tactical decisions with the help of
marginal costing information.
 This method helps in optimum allocation of
resources and as such it is the most efficient and
effective pricing technique and it is useful when
demand conditions are slack.

 Marginal cost pricing is suitable for pricing over

the life-cycle of a product. Each stage of the life-
cycle has separate fixed cost and short-run
marginal cost.

 This method enables the firms to face

competition. This is the reason why export prices
are based on marginal costs since international
market is highly competitive.
THANK YOU