MANAGEMENT ACCOUNTING Essay Example | Topics and Well Written Essays - 2000 words - 1

MANAGEMENT ACCOUNTING - Essay ExampleFor the purpose of understanding the importance of borderline cost system in the firm, let us start with the very fundamentals of marginal costing. Marginal costing is the system of ascertaining the marginal cost and its use for close making. Marginal cost is the extra cost incurred for producing an additional output. The extra cost incurred usually is the one which is likely to spay in direct proportion to the change in output. Such costs are known as variable cost and hence the costing system is also called variable costing system. The basal idea behind marginal costing system is that all variable costs are deducted from the sales to find out the contribution ( from which fixed expenses is by and by deducted to ascertain the profit) on the plea that fixed cost remains constant irrespective of the volume of output or sales. There are many applications of marginal costing in manufacturing concern. One of such applications is the decision with regard to the make or buy decision. In the make or buy decision, the management control undertakes a cost benefit analysis. Such a decision making requires the firm to know through marginal costing what contributes to fixed costs lead result from a make decision. The points to be taken care of at the time of make or buy decision areWhen the power is forthcoming it cannot be utilized for manufacture of other products, then the acquire cost is compared with the marginal cost or total cost is compared with the purchase cost plus fixed cost of manufacture to take the decision to make or buy.When the capacity is available and it can be utilized for manufacture of other products, the purchase price is compared with the marginal cost of the product and plus opportunity cost, i.e., the loss of contribution of other product replaceWhen there is no additional capacity available and it is proposed to acquire additional facilities for