- In order for marginal costing to operate effectively, it is important that an organization knows the behavior of it’s costs so that fixed and variable costs can be identified with accuracy and certainty.
- Marginal costing is essentially a short term concept. In the longer term all costs, fixed as well as variable, must be covered by revenue of the organization if it is to make a profit.
- It can be argued that pricing decisions based on marginal costing may be harmful to the business in the longer term because a loss may occur unless prices are set cover all costs.
- In the longer run, total profit for a company will be the same whichever costing method is used because in the long run total costs will be the same by either method of accounting. Different accounting conventions merely affect the profit of individual periods.
Criticisms of Marginal Costing (Disadvantages)
