Limitations of Standard Costing

on 6:33 AM

Limitations of Standard Costing
Standard costing has certain limitations which are as follows :

(1) Setting of standard is a very difficult task and it involves a high degree of technical skill. Therefore it is costly and will be expensive from the point of view of small concern.

(2) Conditions of the business are charging. Hence , standard must be revised from time to time otherwise they lose importance.

(3) Fixation of standard is not possible for every type of work or operation. It cannot be implemented in those industries which do not produce any standard product.

(4) Sometimes it creates adverse psychological effects. if the it is set at a high level its non-achievement results in frustration and builds up resistance. It acts as a discouragement rather than incentive for better efficiency.

(5) It is partly determined on the basis of past experience and partly on the basis of forecast of future expenses. Thus uncertainties are around standard and determination of correct standard is very difficult.

(6) Too much care and attention are required to introduce as well as to keep up-to-date the system otherwise the very purpose of the system will be frustrated.

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