What is marginal costing?

Question

Accepted Answer

Marginal costing is a costing technique where only variable costs are considered for decision making.

Marginal costing helps in determining the contribution margin of a product or service.
Fixed costs are not considered in marginal costing as they are not affected by changes in production or sales.
It is useful in making short-term decisions such as pricing, make or buy decisions, and product mix decisions.
Example: A company wants to introduce a new product line and wants to know if it will be profitable. Marginal costing can help in determining the breakeven point and the minimum price at which the product should be sold.
Example: A company wants to decide whether to outsource a particular process or do it in-house. Marginal costing can help in comparing the variable costs of both options.

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