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.
Explain P/V ratio and Contribution.
P/V Ratio: P/V Ratio (Profit Volume Ratio) is the ratio of contribution to sales which indicates the contribution earned with respect to one rupee of sales…