Importance Of Marginal Costing In Decision Making Process

Question

Alpha Company, which sells specially designed envelopes has been in the industry for almost then years. The company’s profit and loss account for the month of December 2012 is given below:

Alpha Company
Profit and Loss Account for December 2012
                                                     €
Sales (21,500 units)                1720,000
Less: Variable Costs                   967500
                                             ________
Contribution                               752500
Less: Fixed Costs                        780000
                                              ________
Net Loss                                       27500

Describe and illustrate why marginal costing is considered to be better for decision making purposes that total absorption costing.

Summary

The question belongs to Finance and it discusses about a scenario of a business which yields a net loss. The importance of marginal costing in the process of decision making and total absorption costing has been discussed in the solution.

Total Word Count 78