Marginal costing is only useful in short-term decision making.

Question

BlackTom AI · Accepted Answer

Topic at hand is whether marginal costing is useful only for short-term decision making. 
Option 1: True. This statement suggests that marginal costing has relevance exclusively to short-run decisions, such as choosing among alternatives where fixed costs are sunk or irrelevant. However, while marginal costing is indeed a fundamental tool for short-term decisions (pricing, shutdown/continue decisions, optimization of constrained resources), it is not confined to just short-term use. 
Option 2: False. In fact, marginal costing is widely employed for both short-term and some long-term decision processes. It helps in analyzing contribution per unit, breakeven analysis, and in decisions where incremental costs and revenues matter, which can include medium-term planning and even certain long-term evaluations where fixed cost behavior and separable costs are relevant. 
Examining the underlying concept, marginal costing focuses on variable costs and the contribution margin, enabling assessments of incremental profitability for specific decisions. This concept is not inherently restricted to a single time horizon; its utility spans multiple decision contexts where distinguishing between fixed and variable costs is informative. 
Common misconceptions might cling to the idea that fixed costs make marginal costing useless beyond a short horizon, but in practice, even long-term decisions can benefit from understanding how costs behave with changes in activity, provided the analysis remains valid within the chosen time frame and cost structure assumptions. 
In summary, the claim that marginal costing is only useful in short-term decision making is too narrow, because the approach informs any decision that hinges on incremental costs and contributions, across various time horizons.

LC Decision Making & Control 32181 Week 2 Quiz: Marginal Costing

Marginal costing is only useful in short-term decision making.

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