Limitations of standard costing.

Limitations:

Standard costing is a very good system, but it should be used giving regard to following limitations:

1. Identifying of standards requires lot of skill, imagination and experience. If these are not in harmony, desired results will not be identified.
2. Analysis of variance is useful, but its difficult to link the deviations with responsibility. Because the result happens to be the outcome of a number of contributory factors.
3. Standards should be determined on the basis of current conditions for best results, as it changes rapidly. Revision of standards is a costly exercise and leads to a lot of associated problems. Due to this, standards may get ignored.
4. It is difficult to use standard costing, when working conditions do not permit standardization of material contents, labour contents or the use of indirect services relating to different jobs, process and services.
5. Inefficient management leads to ineffective standard costing.
6. Isolating the controllable and uncontrollable elements of variances is a very difficult exercise and this difficulty restricts the application of standard costing.
7. Due to setting of standards at high level, it created adverse psychological effects.