How is Marginal Costing applied in Service Industry or in a highly mechanized manufacturing unit?
Marginal costing is generally applied based on variable costs only as fixed costs are not considered as they are constant and in case of product based industries, it applies by considering the direct materials, direct labor, direct expenses and other variable overheads but some of these costs are not actually be part of service industry like direct materials etc, so the marginal costing is applied in service industries by taking in to account of all variable expenses and then the required profit margin is added to decide the selling price of the services to be provided in the future date. The similar process is followed in highly mechanized manufacturing units but here the share of fixed costs are more due to heavy and big machinery that were used in highly mechanized manufacturing units, however, the share of variable costs are also huge due to high production.
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