Advantages and Disadvantages of Marginal Costing

Marginal costing can be defined as an accounting technique whereby small increase or decrease in output result in change in total cost. For example suppose it takes $1000 to produce 1000 units and next 1 unit is produced at $2 then marginal cost will be $2 for that unit. Here are some of the advantages of marginal costing technique –

1. It is simple to understand and easy to calculate and hence anybody can understand it easily.

2. It helps in decision making like for calculation of profitability, for determining selling price of the product, to decide whether to buy or make a product, whether to utilize the idle capacity available with the company.

3. It helps in cost control by showing variable and fixed cost separately.

Disadvantages of marginal costing

1. Under marginal costing all costs are classified as either fixed or variable and it ignores the semi variable costs.

2. It is not suitable for companies which have high fixed cost per unit because it takes into account only variable cost per unit.

3. It is suitable only where production is of uniform size and shape and hence it is of limited use for companies which produce goods of different shapes and sizes.

Hence companies should take into account above factors before deciding whether they want to adopt marginal costing or not.

3 comments… add one
  • Samir Kumar

    Its good .easy to understand for students who is not a commerce background.

  • brendon koustin

    Well articulated with aided understanding

Leave a Comment


Related pages


advantages and disadvantages of socialist economydividend defdisadvantages of the payback methodvostro account definitionurbanisation benefitshorizontal merger examplecharacteristics of job order costing systemfloating currency definitionwhat is cash inflowsa2z maintenance & engineering serviceserror of omission in accounting examplea2z maintenance & engineering serviceshorizontal and vertical analysis of balance sheetadam smith absolute advantage theorymulti segment targeting strategy examplesadvantages and disadvantages of m&aunitary elastic demand definitionadvantages and disadvantages of monetary systemnegatives of monopoliescash flow fund flowmonopolistic characteristicsdefine a traditional economywhat are the advantages of capitalismfree market economy advantages and disadvantageswhat are vertical mergersconservatism conceptrtgs full meaningautocratic coaching stylewhat is crossing a chequelaw of diminshing marginal utilitydifference between trading account and demat accountprocess costing disadvantagescomparison between capitalism and socialismunsystematic risk definitionconglomerate examplecash flow disadvantagesovercast meaning in accountingmerits and demerits of internetfifo methodscheque deposit procedurepurpose of preparing trial balanceadvantages of job specializationmarket skimming pricing exampleexamples of substitutes in economicsorganizational structures advantages and disadvantagesconglomerate strategytypes of factoring in financeassumptions of capm modeladvantages and disadvantages of diversificationjob costing process costingadvantages and disadvantages of advertisementplr rate of sbicommand economy advantagesdefinition of redeemable preference shareslaw of diminishing returns economics exampleadvantages and limitations of marginal costingautocratic managersillegal immigration disadvantagesstatutory liquidity ratio in hindiadvantages of traditional economic systemautocratic coaching styleadvantages and disadvantages of stockswhat is the difference between accounts payable and bills payableadvantages and disadvantages of mixed economiesconsignee accountingmonopolistic competitive market examplesdisadvantages of advertisementthree golden rules of accountingan example of a vertical mergernasdaq fullformdifficulties in barter systemfor a monopolistic competitorforfeiting meaningadvantages of vertical organizational structurefull form of cfaadam smith absolute advantage theoryadvantages and disadvantages of cost plus pricing