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    Limitations of Standard Costing

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    Amit
    Standard costing has several limitations: 1. Precise estimation of prices and rates paid is difficult due to price variations. 2. Variations in output levels mean standard costs may not be realized if output is below standards. 3. Frequent technological changes in some industries make standard costing unsuitable due to changing production conditions.

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    Limitations of Standard Costing

    Uploaded by

    Amit
    68 views2 pages
    Standard costing has several limitations: 1. Precise estimation of prices and rates paid is difficult due to price variations. 2. Variations in output levels mean standard costs may not be realized if output is below standards. 3. Frequent technological changes in some industries make standard costing unsuitable due to changing production conditions.

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    Standard costing

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    Standard costing has several limitations: 1. Precise estimation of prices and rates paid is difficult due to price variations. 2. Variations in output levels mean standard costs may not be realized if output is below standards. 3. Frequent technological changes in some industries make standard costing unsuitable due to changing production conditions.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    68 views2 pages

    Limitations of Standard Costing

    Uploaded by

    Amit
    Standard costing has several limitations: 1. Precise estimation of prices and rates paid is difficult due to price variations. 2. Variations in output levels mean standard costs may not be realized if output is below standards. 3. Frequent technological changes in some industries make standard costing unsuitable due to changing production conditions.

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    of 2

    Limitations of Standard Costing:

    1.Variation in Price:

    One of the chief problems faced in the operation of the standard costing system is the precise
    estimation of likely prices or rate to be paid.

    2. Varying Levels of Output:

    If the standard level of output set for pre-determination of standard costs is not achieved, the
    standard costs are said to be not realised.

    3.Changing Standard of Technology:

    In case of industries that have frequent technological changes affecting the conditions of
    production, standard costing may not be suitable.

    4.Applicability:

    It cannot be used in those organizations where non-standard products are produced. If the
    production is undertaken according to the customer specifications, then each job will involve
    different amount of expenditures

    5. Problem in fixing Responsibility:

    The fixing of responsibility is not an easy task. The variances are to be classified into controllable
    and uncontrollable variances. Standard costing is applicable only for controllable variances.
    6. More Expenses:
    The standard is fixed for raw materials in terms of price and quantity, and then standard is fixed
    for labour in terms of rate and number of workers with level of efficiency. Moreover, standard is
    fixed for fixed overhead and variable overhead. Hence, there is a need of incurring heavy expenses
    for fixing above mentioned standards since the fixing of standard requires high order of skill i.e.
    experts.

    7. Frequent Revision of Standard:


    Future is uncertainty and the business environment is fast changing. Hence, the fixing of standard
    requires the revision at frequent intervals. If not so, there is no meaning of fixing standard.
    Moreover, revision of standards is a tedious process.

    8. for Non-Standardized Products:


    The standards cannot be fixed for all the products. It means that there may be some products which
    cannot be fixed as standard products. If so, there is no possibility of fixing standard for such
    products.

    9. Difficult Process in Setting of Standard:


    The process of setting up standards is a difficult task as it requires technical skill. The time and
    motion study are required to fix the standard. These studies require a lot of time and money.

    10. Bias in fixing of Responsibility:


    The causes for the variances may be due to controllable and uncontrollable factors. But, the
    determination of controllable factors and uncontrollable factors has personal bias or no clear cut
    norms. Hence, it is very difficult to fix the responsibility of any executive.

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