Question
What are limitations of marginal costing?
Answers
. It is difficult to classify costs exactly into fixed and variable. Most of the expenses are neither totally variable nor wholly fixed.
. Contribution itself is not a guide unless it is linked with the key factor
. Sales staff may mistake marginal cost for total cost and sell at a price, which will result in loss or low profits. Hence, sales staff should be cautioned while giving marginal cost.
. Overheads of fixed nature cannot altogether be excluded particularly in large contracts while valuing the work-in-progress. In order to show the correct position fixed over heads should be included in work-in-progress.
. Some of the assumptions regarding the behavior of various costs etc., are not necessarily true in a realistic situation. For example, the assumption that fixed cost will remain static throughout is not correct.   Your Comment




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