Marginal Costing is based on the use of resource drivers for cost planning, cost control and analysis, and cost assignment.
In this sense, then, the relationship between Marginal Costing and Process Costing/ABC as cost allocation models is not only one of competition but also complementary.
These differences include a different definition of output measures in the form of process/activity cost drivers that are not necessarily volume-based and different cost categories compared to Marginal Costing.
In Process Costing/ABC, the processes are essentially an additional level between cost center accounting and job order cost accounting in Marginal Costing.
In conclusion, we have seen that process costing and Marginal Costing are fully complementary approaches to cost management.
6 PREREQUISITES FOR EFFECTIVE AND EFFICIENT USE OF MARGINAL COSTING
An empirical study in Germany found that Marginal Costing is used by 49% of small companies, 65% of mid-sized companies, and 61% of large companies and that 42% of all companies use marginal costs in short-term operational accounting.
7) Robust, integrated enterprise resource planning (ERP)-based management accounting systems (running parallel to the G/L) were in use by the mid-1980s to support marginal costing.
In Germany, gauging by the latest adoption rate of marginal costing, the KISS principle found few adopters.
Marginal costing has immense credibility, and ABC already has been adapted--to Prozesskostenrechnung (process costing)--to integrate better with marginal costing.
Moreover, marginal costing provides superior decision-support information for the types of decisions that TOC purports to enable.
Despite a sophisticated attempt in Germany to dethrone marginal costing, it has survived the onslaught of the new thinkers.