Limitations Of Standards Costing


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Standard costing technique has the following short comings.

 

  1. Setting of standards is a difficult task as it involves technical skill.
  2. The fixation of inaccurate standards especially those that are incapable of achievement adversely affects the morale of the employees and act as hindrances to increased efficiency.
  3. The system is not suitable for the jobbing type of industries producing articles according to customers specifications even if it is installed, the fixation of standards for type of job becomes difficult and expensive.
  4. It is necessary to distinguish between controllable and uncontrollable variances in order to localize deviations and fixing responsibilities.
  5. The system may not be suitable even in the case of industries that are liable to frequent technological changes affecting the conditions of production even if it is installed, a constant revision of standards become necessary.
  6. Small concern cannot afford this system due to higher cost associated with standard costing.

There is no unanimity regarding the circumstances to be taken as the basis for setting standard costs. even if there is unanimity a revision of standard is essential to suit to the changing circumstances. The revision of standards becomes expensive. If they are not revised, they become outmoded.


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