Page 126 - Microsoft Word - 00 ACCA F2 Prelims.docx

Chapter 8

2.3 Advantages and disadvantages of marginal costing

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.

120