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Limitations of Marginal Costing

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Rakesh Sahu asked over 2 years ago

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 acharya answered over 2 years ago

1.Classifying costs: It is very difficult to separate all costs into fixed and variable costs clearly, since all costs are variable in the long run. Hence such classification sometimes may give misleading results. Furthermore, in a firm with many different kinds of products, marginal costing can prove less useful. 2.Semi-variable costs: Semi-variable costs are either excluded or incorrectly analyzed, leading to distortions.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 narahari answered over 2 years ago

1.Classifying costs: It is very difficult to separate all costs into fixed and variable costs clearly, since all costs are variable in the long run. Hence such classification sometimes may give misleading results. Furthermore, in a firm with many different kinds of products, marginal costing can prove less useful. 2.Semi-variable costs: Semi-variable costs are either excluded or incorrectly analyzed, leading to distortions. 3.Recovery of overheads: With marginal costing, there is often the problem of under or over-recovery of overheads, since variable costs are apportioned on an estimated basis and not on actual value. 4.External reporting: Marginal costing cannot be used in external reports, which must have a complete view of all indirect and overhead costs.

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