Question No 16:
What is Marginal costing?
Marginal costing is a method that values inventory at its variable production cost only. Fixed production costs are not included in the cost of each object and are simply written off in full against profit at the end of the period.Often the marginal cost is also the relevant cost so this can be very useful in short term decision making, by pricing a product at a price higher than its variable costs you will be ensuring a positive short term cash flow of your business. However marginal pricing does not fully take into account fixed costs which ultimately will have to be paid off in the long run for the business to be sustainable.
