Page 17 - P1 Integrated Workbook STUDENT 2018 - Copy

Traditional costing

4.2 Advantages and disadvantages

When compared to other costing systems the marginal costing system has the
following advantages and disadvantages.

Advantages

 Simple.

 Avoids arbitrary allocation and absorption of overheads.

 Better for short-term decision making.

 Profits only rise if sales rise (not production).

Disadvantages

 Fixed overheads may be significant.

 Some direct costs may be fixed.

Illustrations and further practice

Now try examples 2 and 3 from Chapter 1.

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