Lecture 6

Question 1

When would you make decisions taken on a marginal costing basis alone?

Answer 1

When considering a decision to close down a factory/shop/branch etc. or a delete a product, decisions should be taken on a marginal costing basis alone. Therefore all non-specific fixed overheads should be removed form the figures out to make the decision.

Question 2

How would you comment on possible qualities issues in marginal costing problems?

Answer 2

In the case of a closedown/deletion, comments might be made on the possibility of poor publicity, the loss of intellectual capital, the chance for a competitor to exploit the situation etc.