Kfc Franchising in China

Topics: Standardization, Variance, Standard Pages: 2 (387 words) Published: March 6, 2009
Disadvantages of Standard Costing: - Standard costing is very good system, but it should be giving regard to following limitations: Establishment of standards may demand a lot of skill, imagination and experience. If all factors are not in harmony, desired result will not be forthcoming. There are no inset circumstances to be considered for fixing standards. The conditions under which standards are fixed do not remain static. With the change in circumstances, if the standards are not revised the same become impracticable. 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. For instance, if the industry changed the technology then the system will not be suitable. In that case, we will have to change or revise the standards. A frequent revision of standards will become costly. It is difficult to use standard costing, when working conditions do not permit standardization of materials, contents, labour contents or the use of indirect services relating to different jobs, processes and services. Lack of interest by appropriate level of management renders the use of standard costing ineffective. Sometimes, use of standard costing creates adverse psychological effects, if standards are set at a high level. It cannot be used in those organizations where non-standard products are produced and in industries where goods are to be manufactured according to customer preferences. If the production is undertaken according to the customer specifications, then each job will involve different amount of expenditures. The process of setting standard is a difficult task, as it requires technical skills. The time and motion study is required to be undertaken for this purpose. These studies require a lot of time and money. The research evidence shows that overly elaborate variances are...
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