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.
- 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.
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.
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.
planing, cost controlling, directly and decision making.
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.
- 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.
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.
Rational choice
basic economic tools in manaregial economics
importance of the decision making unit
Rational Decision making occurs when marginal benefits of an action exceed the marginal 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.
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planing, cost controlling, directly and decision making.
Steve Player has written: 'Cornerstones of decision making' -- subject(s): Activitiy-based costing, Decision making
statistics and accounting both are very similar to each other regarding their uses, because both are tools of decision making. To take decision regarding average, standard and marginal you have to take help from statistics even if you are accountant.