Limitations of marginal costing


Limitations of marginal costing

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Limitations of marginal costing posted by Rajani Sharma

What are the limitations of Marginal Costing?

The limitations of Marginal Costing:

- The classification of total costs into fixed and variable cost is difficult.

- In this technique fixed costs are totally eliminated for the valuation of inventory of finished and semi-finished goods. Such elimination affects the profitability adversely.

- In marginal costing historical data is used while management decisions are related to future events.

- It does not provide any standard for the evaluation of performance.

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

- Assessment of profitability on the marginal cost base can be used only in the short period of time.

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