Limitations of Standard Costing

Limitations of Standard Costing

Limitations of standard costing have been explained below

1.    Technical Job

Standard development is very technical Job ,and it requires sound technical knowledge, huge experience and deep understanding of business. A wrong standard can produce horrible results. Therefore standard development process requires a resources.

2.    Time Consuming Job

Standard development is time consuming job, because it requires analyses of  data related to a standard. It means at first place data would be collected for analyses, and then a detail analyses would be performed to develop an appropriate standard. This collection & analyses of data requires a lot of time.

3.    Standard Product Phenomena

Standard costing is used by only those industries, which produces the standard product . It means that this costing system cannot be used by the many domestic industries , which does not produce standard products. (many domestic industries lack standardization).

4.    controlling Or Costing Method

Standard costing put over emphases on the cost control issues. Thus Standard costing system works more like a controlling tool than a costing method. many organization use standard costing only for future estimates (budgets) and performance measurements.Thus standard costing has limited role in the product costing.

5.    Statutory Reporting is not possible 

Standard costing cannot be used to prepare the statuary accounts, because standard costs are not  actual cost. However, standard costing result may be altered (adjusted) for the purpose of preparation of statutory reports.