Marginal costing

These marginal costing approaches to costing steam are unsatisfactory. Within operating companies, few subjects generate more controversy than the value placed on different steam levels. 

In preliminary process design it mig] it be necessary to use marginal costs for steam, but the designer should keep in mind the dangers of using such costs. 

Methods 1, 2, and 4 are termed direct costing, variable costing, and marginal costing respectively. Although direct costing is being increas-... 

Optimal economic insulation thickness may be determined Iw various methods. Two of these are the minimum-total-cost method and the incremental-cost method (or marginal-cost method). The minimum-total-cost method involves the actual calculations of lost energy and insulation costs for each insulation thickness. The thickness producing the lowest total cost is the optimal economic solution. The optimum thickness is determined to be the point where the last dollar invested in insulation results in exactly 1 in energy-cost savings ( ETI— Economic Thickness for Industrial Insulation, Conservation Pap. 46, Federal Energy Administration, August 1976). The incremental-cost method provides a simplified and direcl solution for the least-cost thickness. 

In the past, electric utilities dispatched generating units to meet demand on a lowest-to-highest cost basis. This form of dispatch is commonly referred to as economic dispatch. The marginal or incremental cost of dispatching units is traditionally the benchmark used to rank order available generators. These marginal costs, m the very short run, are typically... 

In Figure 61.10 fixed costs are shown above the variable costs and the non-recovery of the fixed costs below the break-even point is more clearly demonstrated. The contribution to fixed costs is of significance in the consideration of marginal costing. 

The full cost of acrylonitrile manufacture based on methane was about 22)4/lb in 1960 (allowing 15% return). But the marginal cost—with no capital charges or overheads—was only 7 /lb. The full cost of propylene ammoxidation (with 15% return) was about 13-16ff/lb according to location. Thus, as soon as it was clear that ammoxidation was likely to... 

The design is supported by stress, fatigue, buckling and safety analysis, and relies on standard steel. Only in localized areas would higher quality (albeit still standard) steel be needed. Carbon hber instead of steel pre-tensioning cables may provide higher performance at a marginal cost increase, but are not strictly required. 

Marginal costings deliberately exclude fixed costs, but it must always be remembered that these still need to be paid. It is important to think about the difference between marginal cost and marginal... 

In this case, the marginal costs per unit are greater than marginal revenues (i.e. selling prices), so the farmer will be in trouble. He or she would effectively be paying customers to take away the produce, and making a loss on every sale. This should not be sustained. 

Here, marginal costs are lower than marginal revenues, so a profit is being made, but the level of contribution is not enough to maintain fixed assets and to leave sufficient profit to make the business worthwhile. This can be sustained for the short-term only, unless the enterprise is in some way contributing to the success of a more profitable product. 

Marginal revenue exceeds marginal cost, and the total contribution is enough to cover fixed costs. This can be sustained. 

The distinct advantage of marginal costing is that it helps the farmer to realise the absolute minimum he has to earn on his products. This is of special value when the farmer is selling directly at the farm gate. 

Using marginal costings, he can work out the cost of producing a dozen eggs and then add a reasonable profit margin. Reasonable is best defined as a price that the market can bear and yet one that helps the farmer recoup costs. 

The concept of steam marginal cost is used as an indicator in the analysis. It is defined as the change in utility system operating cost for unit change in steam demand for a given steam main (change in steam main balance)17 ... 

Figure 23.56 shows a plot of steam marginal cost versus the steam savings17. It features six segments three for HP... 

Figure 23.55 Procedure to obtain the marginal costs of steam for a site utility system. (From Varbanov P, Perry S, Makwana Y, Zhu XX and Smith, 2004, Trans IChemE, 82 784, reproduced by permission of the Institution of Chemical Engineers.)... 

---