ICWA Question:
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List the limitations of marginal costing?
Answer:
★ The classification of total cost as variable cost and fixed cost is difficult as no cost can be completely variable or completely fixed.
★ Fixed costs are eliminated for the valuation of inventory of finished goods and semi-finished goods in-spite of the fact that they might have been actually incurred.
★ It does not provide any standard for the evaluation of performance.
★ Fixation of selling price on marginal cost basis may be useful for short term only and may be dangerous in the long run.
★ It does not consider the fixed overheads.
★ It can be used for assessment of profitability only in the short run.
★ Fixed costs are eliminated for the valuation of inventory of finished goods and semi-finished goods in-spite of the fact that they might have been actually incurred.
★ It does not provide any standard for the evaluation of performance.
★ Fixation of selling price on marginal cost basis may be useful for short term only and may be dangerous in the long run.
★ It does not consider the fixed overheads.
★ It can be used for assessment of profitability only in the short run.
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