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Marginal costing helps management primarily to:
AAscertain the effect of changes in volume or type of output on profit
BCompute total fixed manufacturing overhead absorbed in inventory
CSet selling prices using historical actuals only
DIgnore the distinction between fixed and variable costs
Answer & Solution
Correct answer: A. Ascertain the effect of changes in volume or type of output on profit
1. Marginal costing differentiates between fixed and variable cost.
2. It then ascertains the effect of volume / output-mix changes on profit.
3. This makes it useful for short-run decision-making (break-even, contribution analysis).
_Source: ICMAI BoS CMA Foundation Paper 2 (Cost Accounting), Module 4 §4.1-4.2 (Methods & Systems of Costing), p. 297-308_