There are a number of decision situations such as pricing on special orders, optimal sales mix, adding/deleting product line, etc. where marginal/variable cost is taken into consideration. The author has taken the initiative to identify two managerial decision situations in which marginal/variable costing is most appropriate. 1.1 Make or Buy Decisions: An organization often must decide whether to produce a component or purchase it from a third party; in this case, marginal/variable costing is the most appropriate approach to help the manager decide what to do. In this case, the relevant cost is the differential cost between the two options. This situation is explained below with an example of a fictitious organization supported by Khan MY & Jain P. K (1993). (Please refer to Appendix 5 to relate the facts and figures from the analysis below) Answer and Discussion ABC