The followings are the limitations, drawbacks, setbacks of the Standard Costing Technique.
Limitations of Standard Costing
1. 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.
2. 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.
3. Unsuitable 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.
4. 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.
5. 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.
6. Fast Changing Technology: The industries liable for frequent technological changes will not be suitable for standard costing system.
7. Effect on Psychology of Employees: The setting standards should be attainable. Sometimes, the standards are fixed at higher level. In this case, the employees have resistance to accept the standard. Therefore, standard costing in such a situation will act as a discouragement rather than motivate the employees to show their better efficiency.
8. Labour Problems: If the standards are reasonable and attainable, there is no problem on the part of workers. The incorrect standards may lead to constant labour problems.
9. No Freedom at Work: Whenever the standard costing system is in operation, the employees cannot work at their wishes. Hence, the freedom of work of employees is curtailed and there is no possibility of developing innovative idea.