State the disadvantages of using standard costing in a manufacturing firm.

Management Accounting Block Revision Mock Exams

1.It may be expensive and time consuming to install and to keep up to date.
2. In volatile conditions with rapidly changing methods rates and prices, standards quickly become out of date and thus lose their control and motivational effects. This can cause resentment and loss of goodwill.
3. There is research evidence to suggest that overly elaborate variances are imperfectly understood by line managers and thus they are ineffective for control purposes.
4. Standard costing concentrates only on narrow range of financial factors but many other items are of importance e.g. quality, customer satisfaction.
5. The underlying principles of standard costing i.e. that is standard established prior to a period is a satisfactory measure throughout the period and that performance is acceptable if it meets this standard is alien to the spirit of JIT manufacturing where JIT principles are adopted there is a climate of continuous improvement and the idea of normal levels of waste and efficiency is not accepted because there is a drive towards zero waste and every increasing efficiency. As a consequence it is possible that standard costing will become less useful in modern factories.

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