Limitations of Marginal Costing

Question

Write down the limitations of Marginal Costing?

Answer 1

Limitations of Marginal Costing are illustrated below:

- The categorization of total costs into variable and fixed cost is hard.

- In this method fixed costs are completely eliminated for the valuation of inventory of finished and semi-finished goods. Such removal affects the profitability adversely.

- In marginal costing historical data is employed while management decisions are related to prospect events.

- It doesn’t give any standard for the valuation of performance.

- Selling price fixed on the base of marginal cost will be useful only for short period.

- Estimation of profitability on the marginal cost base can be employed only in the short period.