ECONOMICS

Detailed explanation-1: -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.

Detailed explanation-2: -In this technique p/v ratio, Break-even analysis, Contribution analysis, C.V.P. analyses are the important tools used in decision making. Marginal costing can be easily ascertained by adding variable overheads to prime cost. It is used in short term & medium term decision making.

Detailed explanation-3: -Marginal costing is useful in profit planning; it is helpful to determine profitability at different level of production and sale. It is useful in decision making about fixation of selling price, export decision and make or buy decision. Break even analysis and P/V ratio are useful techniques of marginal costing.

Detailed explanation-4: -Marginal analysis can also help in the decision-making process when two potential investments exist, but there are only enough available funds for one. By analyzing the associated costs and estimated benefits, it can be determined if one option will result in higher profits than another.

Detailed explanation-5: -Therefore, in many short‑term decisions, fixed costs will be irrelevant, since they will remain the same, irrespective of which alternative is selected. Since this is usually the case, marginal costing techniques are applied in most short‑term decisions.