Question

State whether the following statements are true or false In marginal costing, managerial decisions are guided by contribution margin than by profit.

   State whether the following statements are true or false
In marginal costing, managerial decisions are guided by contribution margin than by profit.

Cost Accounting

Cost Accounting

K. Alex 1st Edition

Chapter 13, Problem 6

Instant Answer

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Marginal costing, also known as variable costing, is an accounting method in which only variable costs are charged to cost units and fixed costs are treated as period costs and written off in the period they are incurred. This method is primarily used for internal Show more…

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State whether the following statements are true or false In marginal costing, managerial decisions are guided by contribution margin than by profit.

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Key Concepts

Managerial Decision Making

This refers to the process of making informed choices about business operations by analyzing relevant financial data and cost behavior. In the context of marginal costing, the focus is on the contribution margin rather than traditional profit measures, enabling more effective short-term decision making.

Marginal Costing

This is a costing method where only variable costs are attributed to products, and fixed costs are treated as period costs. It helps managers to understand how costs behave with changes in production volume and to make pricing and production decisions based on short-term economic considerations.

Contribution Margin

This represents the difference between sales revenue and variable costs. It indicates how much revenue remains to cover fixed costs and contribute to profit, and is a key indicator in decision-making processes such as pricing, product mix, and cost control under marginal costing.

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