marginal costing versus lifecycle costing
Historical Development of Marginal Costing
Marginal cost is the change in the total cost that arises when the quantity produced has an increment by unit. That is, it is the cost of producing one more unit of a good. In general terms, marginal cost at each level of production includes any additional costs required to produce the next unit.
The concept of marginal utility grew out of attempts by economists to explain the determination of price. The term “marginal utility”, credited to the Austrian economist Friedrich von Wieser by Alfred Marshall. (Marshall, n.d.) Then, William Stanley Jevons first proposed the theory in “A General Mathematical Theory of Political Economy”, a paper presented in 1862 and published in 1863. He differed from his classical predecessors in emphasizing that "value depends entirely upon utility", in particular, on "final utility upon which the theory of Economics will be found to turn." (Jevons, 1871) He later deriving the result that in a model of exchange equilibrium, price ratios would be proportional not only to ratios of "final degrees of utility," but also to costs of production. (Jevons, 1879)
Historical Development of Lifecycle Costing
Life cycle costing is a technique for evaluating the total costs of a product over its economic life. Another distinguishing feature of life cycle costing is that in addition to production costs, it takes into consideration pre-production costs and post-production costs.
This Analysis became popular in the 1960’s when the US government agencies started using it as an instrument to improve cost effectiveness of building and equipment procurement. From that point, the use has spread in the business sector for all kind of project evaluation and management accounting.
The Objectives of Marginal Costing and Life-Cycle Costing
To clearly know about the objectives of different costing methods is fairly significant for a firm with expected purposes when choosing a suitable one to manage the cost and
Marginal cost is the change in the total cost that arises when the quantity produced has an increment by unit. That is, it is the cost of producing one more unit of a good. In general terms, marginal cost at each level of production includes any additional costs required to produce the next unit.
The concept of marginal utility grew out of attempts by economists to explain the determination of price. The term “marginal utility”, credited to the Austrian economist Friedrich von Wieser by Alfred Marshall. (Marshall, n.d.) Then, William Stanley Jevons first proposed the theory in “A General Mathematical Theory of Political Economy”, a paper presented in 1862 and published in 1863. He differed from his classical predecessors in emphasizing that "value depends entirely upon utility", in particular, on "final utility upon which the theory of Economics will be found to turn." (Jevons, 1871) He later deriving the result that in a model of exchange equilibrium, price ratios would be proportional not only to ratios of "final degrees of utility," but also to costs of production. (Jevons, 1879)
Historical Development of Lifecycle Costing
Life cycle costing is a technique for evaluating the total costs of a product over its economic life. Another distinguishing feature of life cycle costing is that in addition to production costs, it takes into consideration pre-production costs and post-production costs.
This Analysis became popular in the 1960’s when the US government agencies started using it as an instrument to improve cost effectiveness of building and equipment procurement. From that point, the use has spread in the business sector for all kind of project evaluation and management accounting.
The Objectives of Marginal Costing and Life-Cycle Costing
To clearly know about the objectives of different costing methods is fairly significant for a firm with expected purposes when choosing a suitable one to manage the cost and