What does marginal costing primarily include in its calculations?

Marginal costing focuses specifically on variable production costs, which are those costs that fluctuate with the level of output. This method emphasizes the impact of changes in production volume on overall costs and profitability. By including only variable production costs, marginal costing allows for a clearer understanding of contribution margins—the sales revenue minus variable costs. This helps managers make informed decisions regarding pricing, production levels, and product profitability.

In contrast, other costing methods typically incorporate fixed production costs or a mix of both fixed and variable costs, which can obscure the analysis of how costs behave with changes in production levels. This focus on variable costs in marginal costing makes it a valuable tool for short-term economic decision-making, such as determining the breakeven point or assessing the profitability of products.