Accounting Assignment Help With Adding and Dropping

1.9 Adding and Dropping

An organisation may have a number of product lines or departments. Certain product lines or departments may turn out to be unprofitable with the passage of time or due to technological developments. Production of such products of departments can be discontinued. The marginal costing approach assist in these situations to take a decision. It helps in the introduction of a new product line and work as a good guide for deciding the optimum mix keeping in mind the available resources and demand of the product. The contribution of different products or departments is to be compared and the product or department whose P/V ratio is the lowest is to be dropped out. The following illustration explains how marginal costing technique helps the management in decision making.

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