The use of marginal costing techniques for managerial decision making ignores important commercial factors. Discuss this statement including relevant examples to support your argument.

The cost of a overlap under marginal be or variable cost includes only the variable cost of making the harvest-home. The variable costs include adopt material, direct labour and variable overheads. Variable costs per unit nigh the marginal cost of making another unit of a product. Selling toll minus variable costs adds up to voice. Contribution is the amount of money available to cover the set(p) costs and afterwards to contribute to profit. The fixed costs be treated as period costs and are expensed in the period incurred.

Marginal costing can be used to assistant in decision making in the following component part: acceptance of a special order, dropping a product, wee or buy decision and to choose which product (mix) to put up when a limiting factor (resource) exists. The technique of marginal costing mainly concentrates on financial factors, for instance the partys objective to tap profit or to create wealth. But other non-financial or commercial implications with long depot character are for the most part ignored. If a company decides whether it should drop a product or not, it is necessary to consider commercial factors. If it stops producing a product because of its profitability, it might upset customers who have bought this product over years. And it whitethorn happen that they start buying their whole products from competitors. A company should not think immediately about dropping a product when the demand is too low, since it is short term persuasion to let thousands of customers go away. It should rather think about colossal the demand. Further on, the product to be dropped may be a complementary one to another product made by the company. The problems of scarse resources can be compared with those of dropping a product. If an enterprise decides to chance on an optimum product mix (=profit maximising product mix), it might be in the position of not having complete resources to make a product with a light contribution. The equivalent effects of dropping a product could be a consequence. The acceptance of an order might depend on non-financial factors as well. The firm should consider if it could sell the products itself under another (low cost) label.



furthermore a company must make up attention to its price in the primary market because the orderer might offer the product either for a higher or lower price. Make or buy decisions are difficult because outsourcing unceasingly jeopardizes the jobs of those currently working for the company and the fibre of the job to be done. The firms image and thereby its sales are put in danger, if it makes frivolous redundancies. Moreover, the company has to make sure that it gets the same quality of output for less money to justify the outsourcing.

In my opinion it is professedly that marginal costing ignores other relevant commercial factors. The contribution of a product on its own should not be decisive and is short term thinking. A company has to pay attention to customers, public and competitors as well. A long term strategy including financial and non-financial factors should be established to ensure a profitable and sustainable performance.

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