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Unit 3: Absorption Costing and Marginal Costing
13. …………………… planning, generally known as budget or plan of operation may be Notes
defined as the planning of future operations to attain a defined profit goal.
14. The marginal costing technique helps to generate data required for profit planning and
…………………….
15. …………………… decision-making is a very crucial function in any organization.
Case Study The City of Dayton, Ohio: A Case Study in Costing
New Services Marginal Cost Analysis
hile the most effective cost concept for examining the prices of existing municipal
services is total cost, the cost concept that is most useful in examining new or
Wexpanded services is marginal cost. Marginal cost concentrates attention on
the additional expenditures required to deliver a new service or to expand an existing one.
In particular, if overhead costs are relatively fixed, the marginal cost is the total additional
cost for delivering a new or expanded service.
A report by Paul Mamerow, a management analyst for the City of Dayton, Ohio, follows.
It discusses cost and feasibility data for the possible implementation of a mounted horse
patrol in downtown Dayton. Interestingly, while the report is a marginal cost analysis,
the term marginal cost never appears in it.
September 17, 1974
Marginal Cost Analysis
TO : Paul R. Woodie, Administrator
Office of Management and Budget
FROM : Paul W. Mamerow
SUBJECT : Mounted Horse Patrol
Recently, the city manager requested OMB to provide cost and feasibility data for a
mounted horse patrol in the downtown area. The following report supplies relevant cost
data and briefly outlines two alternatives for implementation.
In preparing this report, OMB contacted both the International City Manager’s Association
and the International Chiefs of Police Association for assistance. OMB further made contact
with the Cleveland, Philadelphia, Lakewood, Colorado, and Washington Park Police
Department (all of which have mounted police) and with several local stabling concerns.
Part I of this report suggests possible objectives for a mounted patrol in Dayton.
Part II briefly outlines two alternatives for implementation of the mounted patrol program.
Part III presents cost information for each implementation alternative. Cost detail is
supplied in the Appendix.
Objectives
The following represent those objectives which apply to a mounted patrol program in
Dayton. These objectives were arrived at through review of several mounted patrol
programs operating in cities as large as, or larger than Dayton, and through consultation
with Mr. Cur ran as to his expectations.
Contd...
LOVELY PROFESSIONAL UNIVERSITY 53
