The advantages and disadvantages of standard costing

The benefits for controlling having a standard costing system in operation can be summed up as follows;

• Cautiously planned standards are a help to more precise budgeting.
• Standard costs give a yardstick against that real costs can be measured.
• The setting of standards includes determining the best materials and techniques which might lead to economies.
• A target of effectiveness is set for employees to arrive at and cost-consciousness is stimulated. 
• Variances can be computed that enable the principle of management by exception to be operated. Only the variances that exceed acceptable tolerance limits require to be investigated by management with a vision to control action.

The disadvantages of standard costing include the following:

• It is difficult to set accurate standards.
• The collection and analysis of data to run a standard costing system may be very time-consuming.
• Standards may be seen as a pressure device.