Managerial Uses of Marginal/Differential Costing for Decision Making

Marginal costing offers valuable insights for managerial decision-making in various scenarios:
1.Pricing of Products: Marginal costing aids in determining prices during trade depressions,
dumping practices, seasonal demand fluctuations, and competitive markets, ensuring decisions align
with covering costs and maximising contributions.
2.Acceptance of Special Orders: Assessing the profitability of special orders by comparing
their price with marginal costs, while considering factors like market impact, quality perception,
competition, idle capacity, and potential long-term benefits.
3.Evaluating Department or Product Profitability: Marginal costing assists in assessing the
profitability of different product lines or departments, aiding in decision-making regarding
introducing new lines or discontinuing less profitable ones.
4.Choosing Sales Channels: By comparing the contribution from different sales channels,
marginal costing helps in selecting the most profitable distribution methods.
5.Suspension of Activities or Temporary Closure: Marginal costing aids in determining
whether to suspend operations temporarily based on covering fixed costs and assessing the
shutdown point.
6.Permanent Closure of the Factory: Comparing the net income from continuing operations
with income from selling or leasing facilities helps in deciding whether to permanently close down
the business.
7.Make or Buy Decisions: Marginal costing assists in comparing the cost of manufacturing
components internally with buying them externally, considering factors like marginal cost, fixed
expenses, and potential savings.

Non-cost considerations like component quality, supply regularity, supplier reliability, and facility
maintenance desirability should also be taken into account alongside cost considerations.