Marginal cost is the increase in the total cost of production that results from manufacturing one more unit of output. Marginal costs are variable costs. Direct costing is a concept that considers only the variable costs, such as production labor, material costs, and sales commission to be product costs. Non-variable costs, both manufacturing and non-manufacturing, are treated as time period costs.
A direct costing system presents costing information in a manner that can be easily interpreted and used by management. Because individual product costs are clearly identified, direct costing makes it easier to compare the cost of production and the contribution each product makes to n6nvariable sewing and administrative costs and profit. Direct costing makes it much easier to identify the styles with the highest contribution rate and the most profit potential. Supervisory personnel have a much clearer picture of the costs for which they are accountable. Specific variable costs are identified for each product that provides a basis of cost control.
Costing may be done at several different stages of production: (1) preliminary or precosting is done during product development before samples are made, (2) cost estimating or final costing is done prior to production and price setting, (3) recosting is done whenever there is a change in equipment, production processes, materials, or garment components, and (4) actual costs are determined during production.
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