Limitations of Marginal Costing

1. It is difficult to classify exactly the expenses into fixed and variable category. Most of the
expenses are neither totally variable nor wholly fixed. For example, various amenities
provided to workers may have no relation either to volume of production or time factor.
2. Contribution of a product itself is not a guide for optimum profitability unless it is linked
with the key factor.
3. Sales staff may mistake marginal cost for total cost and sell at a price; which will result in
loss or low profits. Hence, sales staff should be cautioned while giving marginal cost.
4. Overheads of fixed nature cannot altogether be excluded particularly in large contracts,
while valuing the work-in- progress. In order to show the correct position fixed overheads
have to be included in work-in-progress.