22.12. Limitations of Marginal Costing

Try these first

1. 1.

   What is the main limitation of marginal costing related to fixed costs?

   Hint

   Think about the different types of costs involved.

2. 2.

   Explain why marginal costing is not suitable for long-term financial planning.

   Hint

   Remember that fixed costs must be factored into pricing.

3. 3.

   Marginal costing ignores which type of cost?

   • Fixed Costs
   • Variable Costs
   • Both

   Hint

   Think about the costs that remain constant.

4. 4.

   True or False: Marginal costing is suitable for long-term planning.

   • True
   • False

   Hint

   Consider the nature of fixed costs.

5. 5.

   A company is using marginal costing to assess a new product with significant fixed overheads. Discuss the potential outcomes of this approach.

   Hint

   Think about the overall expenses involved in production.

6. 6.

   Evaluate how linear cost behavior assumptions in marginal costing might lead to poor decision-making in fluctuating markets.

   Hint

   Consider how costs can change based on production levels.