what are the advantages and disadvantages of marginal cost pricing?
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(1) Marginal costing system is very useful for internal purposes – decision making, planning and control. (2) Calculation of cost of sales, under marginal costing system, is very simple to understand. (3) Marginal costing system is very simple to operate as it does not require complex apportionments of overheads.
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The correct answer is a. Marginal cost is the change in total cost divided by the change in total output.
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['Advantage #1: Savings on some expenses. ... ', 'Disadvantage #1: Unstable income. ... ', 'Advantage #2: A more flexible schedule. ... ', 'Disdvantage #2: Difficulty picking up work. ... ', 'Advantage #3: The end of the rush hour. ... ', 'Disadvantage #3: Isolation. ... ', 'Advantage #4: The freedom to choose your assignments. ... ', 'Disadvantage #4: The loss of a client.']
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Calculation – marginal costing is based on variable costs but excludes fixed costs and absorption costing includes both direct and indirect cost. ... Use – marginal costing is not allowed for financial reporting purposes whereas absorption costing can be used for both financial and management accounting.
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['Advantage: Keep Control of the Company. ... ', 'Advantage: Bank Loan is Temporary. ... ', 'Advantage: Interest is Tax Deductible. ... ', 'Disadvantage: Tough to Qualify. ... ', 'Disadvantage: High Interest Rates.']
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['Advantage: Profitability and Value. ... ', 'Advantage: Better Customer Relations. ... ', 'Disadvantage: CSR Costs Money to Implement. ... ', 'Disadvantage: Conflicts with the Profit Motive.']
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['Advantage: Financial Rewards. ... ', 'Advantage: Lifestyle Independence. ... ', 'Advantage: Personal Satisfaction and Growth. ... ', 'Disadvantage: Financial Risk. ... ', 'Disadvantage: Stress and Health Issues. ... ', 'Disadvantage: Time Commitment. ... ', 'Try a Side Hustle.']
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["Advantage – Cost Reduction. It's a basic financial principle that profit comes from making more money than you spend. ... ", 'Advantage – Security. ... ', 'Advantage – Reliability. ... ', 'Disadvantage – Downtime. ... ', 'Disadvantage – Security. ... ', 'Disadvantage – Cloud Service Closes Shop.']
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Marginal cost represents the incremental costs incurred when producing additional units of a good or service. It is calculated by taking the total change in the cost of producing more goods and dividing that by the change in the number of goods produced.
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For a perfectly competitive firm, marginal revenue is equal to price and average revenue, all three of which are constant. For a monopoly, monopolistically competitive, or oligopoly firm, marginal revenue is less than average revenue and price, all three of which decrease with larger quantities of output.
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By contrast, a variable cost is one that changes based on production output and costs. ... There is a marginal cost when there are changes in the total cost of production. Since fixed costs are constant, they do not contribute to a change in total production costs. Therefore, marginal costs exist when variable costs exist.
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Advantages and Disadvantages This is less likely to be an issue for a smaller organization, because the different departments may be in frequent contact already. Product departmentalization has the advantage of flexibility but the potential disadvantage that the departments may compete unintentionally.
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["Fixed Costs (FC) The costs which don't vary with changing output. ... ", 'Variable Costs (VC) Costs which depend on the output produced. ... ', 'Semi-Variable Cost. ... ', 'Total Costs (TC) = Fixed + Variable Costs.', 'Marginal Costs – Marginal cost is the cost of producing an extra unit.']
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Average and Marginal Cost. Marginal cost is the change in total cost when another unit is produced; average cost is the total cost divided by the number of goods produced.
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Price can't rise above a certain level. This can reduce prices below the market equilibrium price. The advantage is that it may lead to lower prices for consumers. The disadvantage is that it will lead to lower supply.
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It follows that, when average total cost is at its minimum, marginal cost is equal to average total cost. Also, when average variable cost is at its minimum, marginal cost equals average variable cost. G. In the long run, all inputs are variable.
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['Marginal cost = ($6,000 – $5,000) / (1,500 – 1,000)', 'Marginal cost = $1,000 / 500.', 'Marginal cost = $2 which means the marginal cost of increasing the output by one unit is $2.']