Marginal Costing as Decision Making tool

Marginal Costing as Decision Making tool

Marginal costing is consider to provide more information to management for decision making.

1. Direct Relationship

Marginal costing establish a direct relationship between sales volume and profit as one additional unit sold will bring additional contribution. This relationship can be used by management to determine the profit level.

2. Expected Cash flow

Marginal costing provides vital information about the expected cash flow from the sales and cash availability for meeting the fixed cost and other operation.

3. Less Manipulation of Profit

Marginal costing there are less chances of profit manipulation as compared to absorption costing where the profit can be manipulated by valuation of stock.

4. Decision Making tools

Marginal costing concept of contribution can be used in various quantitative techniques of decision making like break even analyses.