MARGINAL COSTING
Marginal costing, also called marginal-cost pricing, is the use of incremental costs rather than full costs to determine DISC profits.1 However, the regulations permit marginal costing to increase DISC)profits only when foreign sales are less profitable than domestic sales.2
Basic Requirements for Marginal
Costing
The marginal-costing method of profit determination is a variation
of the regular combined-taxable-income method.3 When marginal
costing applies, these rules determine the combined taxable income.
Then, the DISC's profit of 50 percent of combined taxable income
plus 10 percent of export promotion expenses is computed lSing
the marginal-costing determination of combined taxable in- ome!
Marginal costing applies exclusively to the combined-taxable-income
method of profit determination. It has no applicability to profit
letermination under the gross-receipts method. As a result, the
"no DSS" rule that limits DISC profit under the gross-receipts
method5
I. § 994(b); Reg. §
I.994-2(b) (1 ); see also, Carey, Getting the Benefits
of DISC Marginal Costing, U.S. TAX. OF INT'L OPERATIONS 119517
(1976); Feinschreiber, Basic Requirements for Marginal Costing,
2 DISCUSSION 4 (Feb. 1973) .
2. Reg. § 1.994-2(b) (3).
3. §994(b)(2);Reg.§ 1.994-2(a).
4. Reg. §§ 1.994-1 (c) (3), 1.994-2(a).
5. Reg. § 1.994-1 (e) (1) (i).
