In marginal costing, which costs are considered relevant for decision-making?

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Question: In marginal costing, which costs are considered relevant for decision-making?

Options:

Correct Answer: Only incremental costs

Solution:

Marginal costing considers only incremental costs, which are relevant for decision-making regarding pricing and production.

In marginal costing, which costs are considered relevant for decision-making?

In marginal costing, which costs are considered relevant for decision-making?

Step 1: Understand that marginal costing focuses on the costs that change with the level of production.
Step 2: Identify incremental costs, which are the additional costs incurred when producing one more unit.
Step 3: Recognize that fixed costs (costs that do not change with production levels) are not considered relevant in marginal costing.
Step 4: Realize that relevant costs for decision-making include variable costs and any additional costs that will be incurred if production increases.

Marginal Costing – A costing technique that considers only the variable costs that change with the level of production, ignoring fixed costs.
Relevant Costs – Costs that will be directly affected by a specific decision, including incremental costs associated with production and pricing.