Limitations of Process Costing


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The limitations and weaknesses of process costing systems are as follows:-

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(i)                 Being only average costs for the accounting period, process cost cannot be considered to be very accurate for the purpose of detailed analysis, evaluation, and control of individual performance efficiency on a day-to-day basis.

(ii)               Costs obtained at the end of the accounting period are only historical and are not of much use for effective control unless standard process cost are used. This is, no doubt, true in respect of all other historical systems  but the nature of process accounting with its departmental divisions makes this disadvantage more prominent.

(iii)             When different products come out of one and the same process, the common costs are prorated to the various products. Such cost of individual products are not reliable as they may, at best, be taken to be only approximations.

(iv)             For the purpose of calculation of unit costs of continuous processes, work-in-process is required to be determined at the end of an accounting period. This is done mostly on estimated basis which introduces further inaccuracies in costs.

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We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to contact@bms.co.in.

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