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How is marginal and differential costing used as a tool for decision making?
Wiki User
∙ 15y ago
The Marginal or differential accounting has the basic rule that this accounting method donot consider decisions made previously and only considers the decisions effecting the future so only that information is used for future decision making which is going to effect or change the future decisions and don't considers the decisions made before. So past information is not relevent for future decision making and this is also the main rule which is used by this accounting method if we use other accounting methods like absorption costing for decision making in the end there is a chance to make wrong decisions.
Wiki User
∙ 15y ago
Anonymous
Marginal Costing and differential Costing as a tool for Decision Making--
Marginal costing not quote source costing method but a costing techniques used in the routine cost accounting system for the calculation of costs and the valuation of stocks. It is used as basis for providing information to management for planning and decision – making.
Marginal costing is a very valuable decision-making technique. It helps management to set prices, compare alternative production methods, set production activity levels, close production lines and choose which of a range of potential products to manufacture.
Differential analysis is useful in this decision making because a company's income statement does not automatically associate costs with certain products, segments, or customers. Thus, companies must reclassify costs as those that the action would change and those that it would not change.
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Marginal costing is useful in?
Marginal costing is one of the technique of costing and is usefull for the decision making process. As in decision making process decision are always made for the future activities and not for past activities so if exept marginal costing any other costing method for example absorption costing method is used then there is a chance of making wrong decisions as in future decision making past decision and past data is not relevent for decision making.
State the arguments for using marginal costing approach in routine accounting?
- The Marginal costing technique is appropriate for decision making as it highlights those costs (and revenues) which will change as a result of the decision under review being put into effect. - As fixed costs are mostly overheads, and, under marginal costing these are all treated as period costs and charged into the income statement therefore marginal costing avoids arbitrary allocation of overheads to units of output. - Reporting profit on a marginal costing basis will be more closely relates to changes in sales volume and are less affected by changes in inventory levels. - An understanding of the behavior of costs and the implications of contribution is vital for accountants and managers as the use of marginal costing for decision making is universal.
Features of differential costing?
The features of differential costing include residual costs, variable costs, future costs, and making choices among alternative.
What is the Importance of marginal costing in decision making?
Marginal cost is change in total cost due to increase or decrease one unit or output. It is technique to show the effect on net profit if we classified total cost in variable cost and fixed cost.
Are marginal costs relevant costs?
If marginal costs are relevant for specific situation or specific decision making scenario then marginal costs are relevant costs otherwise marginal costs can be irrelevant.
Marginal costing is useful in?
Marginal costing is one of the technique of costing and is usefull for the decision making process. As in decision making process decision are always made for the future activities and not for past activities so if exept marginal costing any other costing method for example absorption costing method is used then there is a chance of making wrong decisions as in future decision making past decision and past data is not relevent for decision making.
State the arguments for using marginal costing approach in routine accounting?
- The Marginal costing technique is appropriate for decision making as it highlights those costs (and revenues) which will change as a result of the decision under review being put into effect. - As fixed costs are mostly overheads, and, under marginal costing these are all treated as period costs and charged into the income statement therefore marginal costing avoids arbitrary allocation of overheads to units of output. - Reporting profit on a marginal costing basis will be more closely relates to changes in sales volume and are less affected by changes in inventory levels. - An understanding of the behavior of costs and the implications of contribution is vital for accountants and managers as the use of marginal costing for decision making is universal.
Features of differential costing?
The features of differential costing include residual costs, variable costs, future costs, and making choices among alternative.
What is the Importance of marginal costing in decision making?
Marginal cost is change in total cost due to increase or decrease one unit or output. It is technique to show the effect on net profit if we classified total cost in variable cost and fixed cost.
Marginal analysis in decision making?
Rational choice
How managerial economic tools such as marginal revenue marginal product marginal cost and marginal profit can be used to inform decision making?
basic economic tools in manaregial economics
Rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs?
Rational Decision making occurs when marginal benefits of an action exceed the marginal costs
Are marginal costs relevant costs?
If marginal costs are relevant for specific situation or specific decision making scenario then marginal costs are relevant costs otherwise marginal costs can be irrelevant.
How does marginal analysis help in decision making?
please answer my question i am in need of it now
What are the purposes of a product costing?
planing, cost controlling, directly and decision making.
What has the author Steve Player written?
Steve Player has written: 'Cornerstones of decision making' -- subject(s): Activitiy-based costing, Decision making
What are the purposes of a product-costing system?
planing, cost controlling, directly and decision making.
