Disadvantages of Marginal Costing

Disadvantages of Marginal Costing

Limitation of marginal costing may be explained in term of total cost & price setting, preparation of financial statement, fixed cost ignorance.

1.    Total Cost & Pricing

In marginal costing full cost of the product may not be determined. Therefore price cannot be set on the bases of marginal costing. If fixed costs are major cost, then wrong pricing decision may result in heavy losses.

2.    Financial Statement Preparation

Marginal costing does not support preparation of financial statement, because financial can only be prepared with accurate stock valuation.

3.    Fixed cost cannot ignored

In marginal costing fixed cost is not taking into account for product cost. This methodology is not rationale, because in many industries fixed cost forms a major portion of product cost.